Labour rules out landlord deduction change, points to capital gains tax
Labour leader Chris Hipkins has ruled out any change to interest deductibility for landlords if Labour is elected.
He confirmed the position on 21 September, according to RNZ. Landlords would keep the current settings. He said the reason was Labour's plan for a capital gains tax instead.
Interest deductibility means a landlord can subtract mortgage interest from rental income before tax is worked out — much like a shop owner deducts stock costs. The coalition Government put the current settings in place in 2024. It reinstated the ability for owners of residential investment property to claim interest costs as a tax deduction. The policy was reported to cost around $2.8 billion over four years.
Under Labour's tax proposal, landlords would face tax at a different point. They would be subject to capital gains tax when they sell their investment properties. Labour has put the rate at 28% on profit from the sale of investment property, according to its policy platform. The tax would apply to investment property sold after 1 July 2027. Labour states nine in 10 New Zealanders would not pay it.
Hipkins has said the capital gains tax will shift investment away from speculative housing and towards productive businesses, in a speech to Labour Party Congress on 28 June reported by the party. Labour's fiscal strategy states core Crown expenditure and revenue will be maintained at around 33% of GDP when the capital gains tax is fully implemented.
That 21 September commitment answers a question Hipkins had left open. In 2021, the Labour government announced plans to phase out the deduction of interest against income derived by residential landlords, according to RNZ. Hipkins later declined to be drawn on whether Labour would reinstate a ban on interest deductibility, in October 2025. Asked on 15 September this year whether Labour would get rid of interest deductibility for landlords, he said Labour would set out its position "in due course". The 21 September commitment supersedes those earlier responses.
The broader context here is that Hipkins has separated yearly holding costs from tax on gains at sale. Interest would remain deductible year to year. Tax would then fall at the point of sale. For tax practitioners and portfolio landlords, that is a shift from denial of deductions to taxation of realised profit. For Labour, it narrows the fight to one instrument. The party will argue the housing incentive problem is better addressed through a capital gains tax than through the deductibility rules.
