The Government introduced a Supplementary Order Paper to a Bill already in Parliament for the extension of the two year Bright-line test to five years.  The two year Bright-line test was brought in for contracts entered into on or after 1 October 2015 and, broadly speaking, taxes capital gains on the sale of residential property where the property is sold within two years from settlement.

The law is being changed by replacing the “two” in the Bright-line test with a “five”, and by providing that the five year rule will apply to contracts entered into on or after the date of Royal assent, which may be in March.

Assuming no other complicating factors, such as association with dealers, developers and builders or the application of the intention test then this is how it should work:

• For contracts entered into prior to 1 October 2015, no Bright-line application;
• For contracts entered into on or after 1 October 2015 but before the Bill receives Royal assent, a two year Bright-line; and
• For contracts entered into on or after the Royal asset, a five year Bright-line rule.

Some commentators have suggested that there is a window for purchasers to get into the two year Bright-line category if they purchase prior to Royal assent.  This should not be done without taking advice.  There could be an adverse inference that such a purchase falls foul of the intention test, and the capital gain will then be taxable no matter how long the property is ultimately held, provided no other exemptions apply.

Please contact your usual Baker Tilly Staples Rodway advisor should you require any advice regarding the above.

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