Generally, if you buy property with the intention or purpose of reselling it, you’ll have to pay tax on any profit you make from its sale.
This is called the intention rule. It applies to both commercial and residential property, so you need to think about your intentions when you first buy a property. What you intend to do with it will determine your tax when you go to sell.
This usually does not apply to your main home or if you bought the property as a long-term rental investment.
If you have several reasons for buying
The intention to sell does not need to be the main reason for buying the property - it could be one of several reasons for buying.
For example, if one of your intentions when buying is to flip the property, even if you rent it out, you'll still need to pay income tax on your profit when you sell it.
Time frames and the bright-line test
The intention rule applies no matter how long you keep the property before selling it.
The intention rule also applies before the bright-line test, which only applies to residential property sold within a set period of time — the bright-line period.
Moana buys a property with the intention of providing a home for herself and her children.
When Moana eventually sells her home, she hopes to make a profit and leave her children a legacy.
In a year's time she gets a new job and decides to sell the property to move closer to her new job. Property prices have risen, so Moana is able to sell the house for much more than she paid for it.
Moana will not pay tax on the profit from her property sale as her intention was always to provide a home for her family.
However, if Moana sells the property within the bright-line period, she needs to consider the bright-line test and whether the main home exclusion applies.
Sue buys a property with the intention of selling it for a higher price when the time is right.
Sue and her family decide they like the area the property is in, so they live in it in the meantime. Sue has a regular pattern of buying and selling residential properties.
2 years later, house prices rise, and Sue decides to sell the property for a profit.
The sale of Sue's property is taxable, because her intention at the time she purchased it was to sell it.
Frances and Bruce buy a second property in the hope that it will quickly gain in value. They decide to rent it out in the meantime. One of their reasons for buying the property is to resell it for a profit.
When the property is sold, the profit on the sale is taxable because one of their reasons for buying the property was to resell it.
Tax Technical advice
Read more on our Tax Technical website about when you may need to pay tax on income from selling land that you bought with the intention of reselling.
QB 16/06: Income tax - land acquired for a purpose or with an intention of disposal
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