The bright-line test

For properties purchased on or after 27 March 2021:

• the bright-line test was extended from 5 to 10 years, except for new builds, where the test period is still 5 years.

  Inland Revenue now issues a letter as soon as they are aware of a potential bright-line transaction, usually within a month of the transaction.

• the current bright-line test exemption for the main home changed, making them subject to a ‘change of use’ rule.

  Under the original rules, if the property had been used as the person’s main home for over half of the relevant bright-line period, there was a complete exemption from tax under the bright-line test. Under the changes, properties acquired on or after 27 March 2021 are subject to a ‘change of use’ rule. If a property switches from being the owner’s main home for more than 12 months, then a proportion of the sale profits of a property sold during the bright-line period will be taxed, based on the ratio of time that the property was and wasn’t used as the main home. The existing main home exemption rules continue to apply for residential property acquired on or after 29 March 2018 and before 27 March 2021.

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