On the 23rd of March 2021, the government announced that the Brightline period is being extended from 5 years to 10 years for property purchased on or after 27th March 2021.
Which bright-line period applies to your property in most cases depends on when the sale and purchase agreement you signed to acquire your property became binding. If the sale and purchase agreement became binding:
- on or after 27th March 2021, the bright-line period is 10 years
- between 29th March 2018 and 26th March 2021 (inclusive), the bright-line period is 5 years
- between 1st October 2015 and 28th March 2018 (inclusive), the bright-line period is 2 years
For clarity around the application date, a property acquired on or after 27th March 2021 will be treated as having been acquired before 27th March 2021, if the purchase was the result of an offer the purchaser made on or before 23rd March 2021 that couldn’t be withdrawn before 27th March 2021. This means that the 5-year bright-line test applies.
Also note that the government has indicated that new builds will continue to be subject to a 5 year bright-line period. Before this can be legislated, what is considered a ‘new build’ is still to be consulted on. The government intends for the legislation to be retrospective so that new builds acquired on or after 27th March 2021 will continue to be subject to a 5-year bright-line period.
Inherited properties and those which have been the owner’s main home for the entire time they owned it will continue to be exempt from all bright-line tests. However, for residential properties acquired on or after 27th March 2021, including new builds, the government intends to introduce a ‘change-of-use’ rule. This will affect the way tax is calculated if the property was not used as the owner’s main home for more than 12 months at a time within the applicable bright-line period. Effectively, a proportional calculation relative to the amount of time the property was not the owner’s main home will need to be made to determine the amount of profit that will need to be declared and taxed.
If you are contemplating the sale or purchase of a residential property, we would highly recommend you seek advice relating to your specific scenario.