In March the Government announced that it intends to remove the ability to deduct interest as an expense from income arising from residential property. Currently, the proposal is out for consultation but the following article outlines some of the key changes being considered.
For residential property acquired on or after 27th March 2021, interest will not be able to be deducted from 1st October 2021. For properties acquired before 27th March 2021 the ability to deduct interest will be phased-out over 4 years from 1st October 2021 as shown below.
There is an exemption to these rules for property developments and new builds who will continue to be able to deduct interest expenses in relation to some or all of that property if it is used to earn income. This exemption will apply to anyone who:
- develops property for the purpose of adding a self-contained dwelling to it, or
- adds a self-contained dwelling to a property, or
- acquires a new build within a certain period of time
Generally, any property that is suitable for people to live in long-term will be affected by these proposed changes. However, some types of properties, like retirement villages, motels, and houses on farmland are proposed to be excluded.
We will continue to closely monitor this proposal as it works its way through consultation. If you wish to discuss any of these potential changes, and consider your own position, please do not hesitate to contact your manager or director to discuss further.