Rental Losses- Ring fenced

You may have heard about the residential ring fencing of losses that were recently passed into law;

Under the provisions, speculators and investors are no longer able to offset tax losses from their residential properties worldwide against their other income (e.g. salary or wages, or business income) to reduce their income tax liability.

 What can losses be utilised for?

ØFuture residential income and;

ØAny income on the sale of residential land e.g. any capital gain caught under the Bright-line test rules.

 Losses can't be used to offset income from other investments.

 The new rules apply from 1st April 2019 for the 2019/20 and later income years.

 Exclusions from the operation of the rules:

Note that the following types of property are also excluded from the operation of the rules under specific provisions:

 ? a person's main home (s EL 9)

? property held on revenue account (s EL 10)

? property held by certain persons and entities (s EL 11)

? property to which the mixed-use asset rules apply (s EL 12), and

? property provided as employee accommodation.

 To see if you would qualify under an exemption, please contact us!

 So, what does this mean for you?

 There are two ways residential losses can be treated;

 1.       Property by property

2.       Portfolio basis

 Property by property allows for the losses on one particular property to be used on that property alone.

 Portfolio basis allows for the losses of all residential properties to be used against any and all residential properties in the portfolio, even if one of the properties in the portfolio is sold, its losses can still be continued forward.

 There is no generic advantage in selecting a property by property basis, however, talk to us as it may be right for your specific circumstances.

Unless the sale of your residential investment is taxable and/or the property is not expected to make a profit, the losses from a residential property are, essentially no longer of any use.  Due to this, you may find that your tax bills next year may be higher than before.

If you would like help in structuring and preparing for the change, please contact us.

 "For more information on the tax rule change and other important changes for landlords click on the links below"

1. Rental properties: New laws now in effect.

2. Law changes: Natural disaster cover for landlords and tenants.