Ring-fencing rental losses

After the recent increase of the bright-line test period from two years to five years the continued pressure being put on the rental property market through tax settings continues.

Inland Revenue have recently released a discussion document to ring fence losses made on residential rental properties.  This will mean that for rental properties that make losses owners will no longer be able to offset those losses against other sources of income such as salary or wages.  Rather the losses will be carried forward to be used in future years when the rental property, or properties, make profit.




Alternatively, the losses can also be used against profits if the person is taxable on the sale of a land.

The key features are;

  • It will apply to residential land, but would not apply to a person’s main home.  The same rules as under the bright-line test.
  • The loss ring fencing would apply on a portfolio basis, meaning losses from one rental property could be offset against profit from other properties.
  • When losses are not fully used in a year they would be carried forward and ring fenced to residential rental income in future years or if taxable on the sale of land.
  • The rules, as proposed, would apply from the start of the 2019-20 income year (1/4/2019) and may be phased in over two to three years.

At this stage the contents of the discussion documents are proposals but we will keep you updated in future newsletters on the progress of these proposals.

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