Renting to yourself
Question from Lynda updated on 20th September 2019:
If I own a rental property, can I rent it personally to myself if I pay a proper rent and declare the income on my property tax return?
Our expert Matthew Gilligan responded:
Legally it is possible for you to hold a property in a company or a trust and then rent the property back for you to occupy as your home. However, from a tax perspective, an arrangement where an individual rents a property back from a company they are a shareholder of, or from a trust they are a beneficiary of, is at risk of being regarded as tax avoidance. The IRD have been fairly clear over the years that they regard any tax benefit from such an arrangement as potentially being a tax avoidance scheme.
Interestingly, with ring-fencing of tax losses on residential property about to come in, not only would you face the prospect of tax avoidance, but there would also potentially be no tax benefit for you in doing so, as any tax losses would be ring-fenced.
What about if there were no tax losses and instead a tax profit? You would then have tax to pay, which the IRD are unlikely to have an issue with, but you should have an issue with that as you would then be paying tax for the privilege of living in your own home. Unless there is some other motivation behind your proposal, it seems inadvisable for you to hold a property that is your home via a trust or a company and rent it back.
Matthew heads GRA's specialist property and asset planning division. He helps clients create optimal tax structures and build wealth through property. He has an extensive buy-to-hold property portfolio, is currently involved in over a dozen developments, and is author of two books - Property 101 and Tax Structures 101.