The Government has announced that new and existing build-to-rent developments will be exempt from the interest limitation rules enacted in March 2022.

The changes to interest limitation rules were first announced in March 2021 as part of the Government Housing Package to support more sustainable house prices, including dampening investor demand for existing housing stock, and to improve affordability for first home buyers.

The Government recognised at the time the rules were introduced that build-to-rent developments could help fill a key gap in the housing market. Exempting build-to-rent development in perpetuity from interest limitation rules means will help enable the full potential of the sector and ensure continued delivery of new housing supply.

To enable the exemption, the Government is proposing a build-to-rent asset class definition that will provide long-term security and stability for tenants of this type of residential property. Proposed legislation implementing the exemption will be included in the Omnibus Tax Bill expected to be introduced on 30 August.   

Proposed build-to-rent asset class definition:

  • at least 20 dwellings in one or more buildings that comprise a single development, on either a single parcel of land or multiple contiguous parcels
  • the dwellings and any common land or facilities for those dwellings have a single owner
  • dwellings can be held in one or more titles
  • the building that a build-to-rent dwelling is in can include other dwellings or commercial premises that do not form part of the build-to-rent development (for example, an apartment block that has shops on the ground floor)
  • the dwellings are used or available for rent under the Residential Tenancies Act 1986
  • explicit personalisation policies must be offered, over and above the Residential Tenancies Act 1986
  • tenants must be offered a fixed-term tenancy of at least 10 years with the ability to give 56 days’ notice of termination, but they may agree to or request other tenancy offers.

The exemption applies from 1 October 2021 for qualifying build-to-rent developments. This means that taxpayers who hold existing build-to-rent assets are not subject to the rules for the short period of 1 October 2021 to 31 March 2022, before then being exempt from them.

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