Labour to keep landlord interest rules, back capital gains tax

Labour leader Chris Hipkins confirmed on Monday that Labour would keep interest deductibility for landlords unchanged if it forms the next government.

He said there would be no change to the settings. Labour has ruled out changes to interest deductibility if elected, and is committed to a capital gains tax instead, according to RNZ.

He said Labour knew when it announced its capital gains tax policy that the decision would shape what it did on interest deductibility. The two policies were considered together.

He said he knows tenants are worried about rents. He does not want to give landlords a reason to lift rents while New Zealanders face pressure from the cost of living.

Under the current settings, landlords can subtract mortgage interest on rental homes from rental income before tax is worked out. It works like other business costs and lowers the tax they pay. The settings were brought back by the government in 2024.

That 2024 change reversed an earlier decision. The earlier rules had stopped landlords offsetting interest costs against tax on rental income, in an attempt to help first-home buyers. Bringing deductibility back was forecast to cost $2.8 billion over four years.

The return was phased in. Deductibility applied at 60% in 2023/24 and 80% in 2024/25, with full deductibility restored from 1 April 2026, according to MPA.

The New Zealand Property Investors Federation welcomed Labour's promise to leave the settings alone if elected. Matt Ball is a representative of the Federation.

Labour's alternative is a capital gains tax on investment property. The party says nine in 10 New Zealanders would not pay the proposed tax, according to Labour. The proposal is a 28% tax on profit from selling investment property after 1 July 2027.

Hipkins set out the aim of that tax in his Labour Party Congress 2026 speech on 28 June. He said it would shift investment away from speculative housing and towards productive businesses, according to Labour.

The broader context here is the trade-off inside Labour's tax package. Deductibility affects yearly holding costs and cashflow, while a tax paid only when a property is sold affects the return at the end. By keeping deductibility steady and putting the change at the point of sale, Labour reduces the near-term risk of rent rises while keeping a lever aimed at where investors put their money. The Federation's welcome suggests landlords read it the same way.