The Government is proposing changes to the bright-line property rules relating to transfers of property to related parties, known as rollover relief.
The proposed change will allow certain transfers between related parties, for example a transfer of a property to a family trust, without triggering the bright-line rule. For example, if you were to transfer the family home from your personal name to your family trust, that transfer would not be considered a disposal for the purposes of the bright-line rule provided the effective ownership remains the same. This means that the original owner would not be taxed on any gain on the property and the new owner will be treated as having acquired the land when it was acquired by the original owner. Such relief will only be provided if the amount received on the transfer is equal to or less than the original owner’s acquisition cost.
Provided the proposed changes are accepted by Parliament, the rollover relief will apply to transfers of residential land occurring on or after 1 April 2022. As the bright-line period is now for a period of 10 years (except for new-builds where it is 5 years), the proposed roll over relief will mean the bright line period will not be reset to the longer 10 year period for transfers that meet the criteria.
If you are thinking of setting up a trust to hold a residential property, or if you have any questions about how the bright-line test applies to your property, please contact one of our experienced members of the Property team for further information on [email protected] or 03 441 2743.