RLWT for offshore persons selling NZ residential property within 2 years.
RLWT amount
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33% of gain
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10% of purchase price
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Gain on sale
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RLWT applies?
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What RLWT is and why it exists
Residential Land Withholding Tax is a withholding mechanism introduced alongside the bright-line test to ensure offshore sellers of New Zealand residential property do not avoid paying tax on gains by leaving the country before a tax return is due. The conveyancer at settlement withholds the RLWT amount and pays it directly to IRD, so the tax is collected before the proceeds leave New Zealand. It is not a final tax: if the actual tax on the gain is lower, the seller files a return and receives a refund of the excess.
The two RLWT amounts and why the lower one applies
RLWT is set at the lower of 33% of the actual gain or 10% of the purchase price. The 33% of gain calculation is the more precise figure, taxing only the profit. But where the gain is unknown or disputed, 10% of the purchase price acts as a proxy. Using the lower amount protects the seller from excessive withholding when the gain is modest, while ensuring some tax is always withheld where a gain is likely. A seller with no gain, for example after costs, should apply to IRD for a variation before settlement to avoid unnecessary withholding.
Steps to take before settlement
If you are an offshore person selling residential property in New Zealand within the 2-year bright-line period, inform your conveyancer early. They have a legal obligation to withhold RLWT unless they hold a valid variation certificate from IRD. If the RLWT would significantly overstate your actual tax, apply for a variation. Gather purchase and sale contracts, all deductible costs such as legal fees and improvement costs, and lodge the application well before settlement. If there is a loss or nil gain, a variation to zero may be available. After the tax year ends, file a New Zealand non-resident tax return to reconcile the final liability and recover any refund.
Frequently asked questions
Who does RLWT apply to?
RLWT applies to offshore persons selling New Zealand residential land within the bright-line period. An offshore person is someone who is not a New Zealand tax resident at the time of sale. Non-resident foreign nationals, New Zealand citizens who have been away for more than 3 years without returning, and overseas companies all qualify as offshore persons for RLWT purposes.
How is the RLWT amount calculated?
The RLWT is the lower of two amounts: 33% of the gain (sale price minus purchase price minus deductible costs) or 10% of the purchase price. The conveyancer or solicitor managing the settlement is required to withhold and pay this amount to Inland Revenue. If the actual tax liability at year end is lower, the seller can apply for a refund through a tax return.
What is the bright-line period for RLWT?
From 1 July 2024 the bright-line period is 2 years for all residential property. RLWT applies only to sales within the bright-line period. If the property is sold after 2 years of ownership, RLWT does not apply, though the offshore seller may still have other NZ tax obligations on income earned from the property during ownership.
Can RLWT be reduced or avoided?
An offshore seller can apply to Inland Revenue for a variation if the RLWT amount significantly overstates the actual tax liability, for example where there is little or no gain. The conveyancer must still withhold unless the variation is approved before settlement. If there is no gain or the property qualifies for the main home exemption, the seller should apply for a variation well before settlement date.