Prior to the Amendments

The bright line tests provide that income from the disposal of residential land is taxable when the disposal is within 10 years of the title being registered under LTA 2017.

When there is a change to the shares that co-owners have in residential land, or where a co-owner is added or removed the disposal of the share that changes hands may be subject to bright line. The start of the bright-line period should reset only for the ownership share that has changed hands. Similarly, when a join tenancy is converted to a tenancy in common, or the other way around, the bright line period should only reset to the extent of the co-owner’s proportional ownership share. There has been ambiguity with this.

There is also a transitional issue relating to which bright line test applies and whether different tests apply to shares a person acquires at different times.

Proposed Amendments

Remedial amendments have been proposed to the bright line rules in S CB 6A and CZ 39.

• In the provisions referencing changes to the form of co-ownership of residential land, it is proposed that references to a joint tenancy or tenancy in common being “acquired” to be amended to refer to the form of tenancy being converted. This reduces confusion and clarifies that the provision is concerned with changes to the form of co-ownership rather than acquisition of land
• Amendments will clarify that when a person disposes of land, the bright line test length and associated settings that will apply and depend on when the first person acquired an interest in the land. If the interest was acquired before 27^th March 2021 and then an additional interest was acquired, when the land is sold, it will fall into the bright line test length that applied at the time they acquired their first interest in the land being sold.

Effective Date

The proposed amendments to section CB 6A would take effect on 27 March 2021. The proposed amendments to section CZ 39 would take effect on 29 March 2018.

For more information regarding changes in co-ownership of land, contact us below.

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