National introduces new interest deductibility rules
Can you believe its already the end of the financial year?
There’s a lot going on in the industry at the moment, and to add to it, the National government has recently announced a change to the interest deductibility rules.
What is interest deductibility?
Interest deductibility is a term used for when interest paid on your home loan can be deducted from your rental income. This will result in paying less tax as your taxable income is lower without the interest being considered. Typically, this mainly applies to investors.
What are the new rules?
While the Labour party was in government, they removed the ability to offset your interest from your rental income, resulting in higher taxes as you were required to pay tax on your interest payments.
Current scenarios where interest deductibility applies:
· If your property is used for social housing or has an exemption it is 100% deductible.
· If you have a new build it is 100% deductible.
· If you bought your property before 27th March 2021 it is 50% deductible.
· All properties purchased from 27th March 2021 are not deductible.
The National government has announced that they will be reversing this rule, reinstating the interest to be deducted from your rental income.
New rules:
Starting this year, all investment properties are eligible for a 60% deduction in the 2023/24 financial year. From April 2024, 80% deduction applies and from April 2025, 100% will apply.
This is huge change which will see investors paying less tax on their properties while hopefully providing an ease to increasing rent prices with investors no longer fully reliant on rental income to combat the high interest rates. This could also a lot more prospective investors enter the market.
If you’re a prospective or existing investor and would like to discuss the new rules further or learn more about your options, feel free to get in touch.
Kind regards,
Fiona & Amy
