RLWT – Residential Land Withholding Tax
The Brightline test was introduced by the IRD a few years ago. Very few people understand how RLWT works. Here are some tips for all.
When you sell a property within the Brightline test period or by an offshore RLWT person, the vendor is required to pay RLWT, unless the following exemptions apply:
• Transfers of inherited property to and from an estate executor;
• Transfer of relationship property;
• When a valid certificate of exemption is in hand where there is a main home exemption or you are a developer who meets certain criteria. (IR1103)
Who is responsible to withhold the tax?
The obligation to pay RLWT primarily is with the vendor’s conveyancer or solicitor.
If the vendor does not have conveyancer or solicitor, then the purchaser’s conveyancer or solicitor is responsible to pay.
If neither party has a conveyancer or solicitor, the obligation to pay RLWT rests with the purchaser.
The conveyancer and solicitor is not liable for RLWT, but may be liable for penalties. If Vendor and the purchaser are associated, the purchaser becomes liable for RLWT.
What is the amount to be withheld?
The amount of RLWT that needs to be withheld will be the lowest of:
• 33% (or 28% if the vendor is a company) x (current purchase price less vendor’s acquisition cost)
• 10% x the current purchase price;
• Current purchase price less outstanding local authority rates less security discharge amount.
Current purchase price is the price the land is being sold for.
For Example: Joe Wong (a Hong Kong resident) invested in rental property in Queenstown:
• Property purchased for $800,000 in Nov 2017
• Property is being sold for $1,200,000 in July 2019
• Outstanding mortgage of $500,000
• Outstanding Rates of $1,800
The RLWT will be lower of
33% x ($1,200,000-$800,000) = $132,000, or
10% x $1,200,000 = $120,000, or
$1,200,000 - $500,000 - $1,800 = $698,200
Therefore, $120,000 needs to be withheld and paid to IRD.
When does RLWT needs to be paid?
RLWT must be paid before any disbursements are made at the time of the settlement.
For more enquries, please contact us.