There are some exceptions to these rules:
New builds: Interest incurred in relation to “new build land” will continue to be fully deductible. "New build land” is land with a self-contained residence, provided that a code compliance certificate (CCC) has been issued for it on or after 27 March 2020. Hotels and motels that are converted into self-contained residences will also qualify, as will modular and relocated homes, and purchases "off the plans". Interest can be deducted for 20 year from the date the CCC has been issued, regardless of a change in ownership (in other words, the exemption attaches to the land, not the taxpayer who owns the land).
Dealers, builders and developers: Interest deductions will continue to be available for land dealers, builders and developers who are subject to tax on disposal. There is also an exemption for taxpayers who are not in business as developers, but who carry out development work that results in a new build.
Other points to note:
Close companies (companies with 5 or fewer natural person or trustee shareholders who hold more than 50% of the shares) will be subject to the new interest rules, regardless of the proportion of assets that are residential rental properties.
Non-close companies that are "residential land companies" will have to comply with the new rules, ie companies that have 50% or more of their total assets as residential rental property.
Wash-up for taxable disposals of land. Interest deductions denied under the proposed new rules may be claimed in the year that the residential land is disposed of, provided that the disposal is taxable.
Inland Revenue has released a set of information sheets providing general information about how the proposals are intended to work.
Although the proposed changes have an effective date of 1 October 2021, the point at which taxpayers comply with the new law will be when they file their 2021/22 tax returns (ie, by 7 July 2022, or by 31 March 2023 for those taxpayers with accountants that have an extension of time for filing returns).