Changes to tax rules for Landlords

From October 1st 2021 the Government will be introducing changes to tax law for landlords and property investors. To help understand how this will impact you and your investment property we have compiled the below information.

The current rules

Currently when owners of residential investment property calculate their taxable income they can deduct the interest on loans that relate to the income from those properties (claimed as an expense). This reduces the tax they need to pay.

Proposed changes

The Government has released the draft legislation outlining details of the policy limiting the deductibility of interest costs on residential property investments.

From 1 October 2021, interest deductions on residential investment property will not be allowed, if the property was acquired on or after 27 March 2021.

Interest on loans for properties acquired before 27 March 2021 can still be claimed as an expense. However, the amount you can claim will be reduced over the next four income years until it is completely phased out.

This means that in the 2025–26 and later income years, you will not be able to claim any interest expense as deductions against your income.

If you borrow money on or after 27 March to maintain or improve property (even if the property was acquired before 27 March 2021), you will not be able to claim interest on that loan as an expense, from 1 October 2021.

A property with a code compliance certificate on or after March 27, 2020 will be eligible to deduct interest for up to 20 years. The exemption will apply to both the initial purchaser of the new build and any subsequent owner within the 20-year period.

Housing Minister Megan Woods says the new build exemption also applied to the build to rent sector.

Property developers (who pay tax on the sale of property) will not be affected by this change. They will still be able to claim interest as an expense.

For more information we found these articles helpful.