Rollover Relief or Grief?

Rollover Relief or Grief?

Moore Markhams

Brightline rules changing 1 July 2024 - New Rollover Relief rules not as good as it seems

 

The bright-line rules are changing again from the 1 July 2024.  
The main change is that the bright-line period will now decrease from 10 years for existing properties or 5 years for a new build, to 2 years which applies to disposals on or after the 1 July.
 
Rollover relief rules applying to bright-line transfers of residential land have also had a complete makeover, with the new criteria applying from 1 July.
 
Rollover relief is intended to allow ‘’internal’’ reorganisations or transfers of the ownership of residential land to occur without restarting the bright-line period or changing the relevant bright line test for the purchaser/transferee and to provide full or partial relief from tax for the vendor/transferor.
 
Under the existing rules, rollover relief applies to certain rollover trusts, transfers to and from LTCs and partnerships, transfers within a company consolidated group. 
 
New associated person tests are being introduced from 1 July.   
 
Transfers between persons associated under sections YB2 to YB13, provided they are associated for at least 2 years prior to the transfer and for trusts where all beneficiaries have been associated with the transferor for at least 2 years, will now qualify for rollover relief. 
 
Commentary to the new rules state they provide further relief than the old rules that apply to transfers between associated persons, however the legislation as it is currently drafted does not exactly achieve that.  The new rollover relief rules only apply where the transferor has transferred the property within the bright-line period, therefore if the transferor is outside the bright-line period, then the bright-line date will reset for the transferee, which could subject the transferee to a 2 year bright-line period under the new rules.
 
Therefore, if you were considering holding off your restructure until after 1 July and your residential land is already out of the bright-line period, you may want to consider bringing this forward to take advantage of the existing rollover relief rules. 
 
A typical example we see could be winding up a trust that holds residential land outside of the bright-line rules. 
 
Currently under the existing rollover relief rules, the transferee could adopt the transferors original purchase date of the property if this is transferred before 1 July 2024. 
 
If the residential land is transferred after 1 July 2024, then the bright-line date will reset for the transferee. Therefore, if the transferee sold this property within 2 years and none of the exemptions applied, then the gain could be subject to bright-line tax.
 
The bright-line rules have changed a lot over the last few years and it’s important to seek advice before entering into any sale of residential land. 
 
Get in touch with your trusted Moore Markhams advisor so we can discuss with you how the new rules may apply to your situation.