Labour rules out landlord interest change, backs capital gains tax

Labour leader Chris Hipkins has ruled out any changes to interest deductibility for landlords if Labour is elected.

The commitment closes off further changes to the tax treatment of residential investment property under Labour. It was reported by RNZ on 21 September 2026.

Current settings

Interest deductibility lets landlords subtract mortgage interest from rental income before tax is worked out, much like any business deducting its running costs. The coalition Government reinstated that rule in 2024. The restored policy was reported to cost around $2.8 billion over four years.

That reinstatement reversed Labour's own 2021 move. The Labour Government announced then that it would phase out the deduction of interest against income derived by residential landlords.

What Labour would do instead

Hipkins said Labour would retain the current settings because the party is committed to a capital gains tax instead. He said that under Labour, landlords would be subject to capital gains tax when they sell their investment properties.

He said changing interest deductibility could affect future capital gains tax settings. He also said he did not want to risk landlords increasing rents because people were already struggling to pay them.

Labour plans to campaign on a narrow capital gains tax with no wealth tax. The proposal is for a set 28 percent tax on commercial and residential property. It would apply to gains made after July 2027. The family home and farms would be exempt, according to RNZ.

The rule-out firms up his earlier position. In August he said it was "unlikely" Labour would fully remove landlord interest deductibility again, but left the door open to a variation.

National campaign chair Simeon Brown described Labour's decision to retain landlord interest deductibility as "rank hypocrisy". He questioned how Labour would pay for its policies without additional revenue after retaining interest deductibility.

The broader context here is about revenue choices and political management. Labour would leave a $2.8 billion coalition tax cut in place while asking voters to back a new realisation-based tax that would not start accruing gains until July 2027. That creates two pressure points for the campaign, the fiscal gap in the next term which National is already targeting, and the design coherence of retaining deductibility while a property is held and applying a 28 percent tax on sale. Hipkins is calculating that landlords should not face both measures at once and that renters would carry the risk if they did. Whether that holds as a campaign argument will depend on how voters weigh rents now against tax on gains later.