How Labour's proposed capital gains tax would work
Tuesday, 28 October 2025
EXPLAINER: The family home is out, but profits on second houses including baches would be taxed. Inherited properties would not initially be taxed, but any gains after the title is transferred would be. Commercial property but not farms or factory equipment would also fall under the Labour Party’s proposed capital gains tax.
Labour revealed its much-anticipated tax policy on Tuesday, ending speculation about whether it would take a capital gains or wealth tax policy to the 2026 election.
The intent is to tax the profit made on properties, excluding the family home, after 1 July 2027. To combat claims of a “tax grab”, Labour said the revenue obtained from the proposed tax would be directed to a new health policy, three free GP visits each year for every New Zealander, and beyond that other healthcare spending.
Labour leader Chris Hipkins said the purpose of the tax was to “shift New Zealand away from relying on property speculation”.
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“It's a significant change in the tax system. It will help us to encourage investment in the productive economy,” he said.
As well as the family home, exempt from the capital gains tax would be farms, KiwiSaver, shares, business assets, and inheritances.
Of course, there are some complications to the policy that should be considered.
Tax exempt: the ‘main’ home
Profit earned from the sale of a person’s main home would be exempt under the proposed tax.
So, if a family purchased a home in 2014 for $550,000, it was valued in 2027 at $700,000, and sold in 2030 for $800,000, the gain in capital value throughout would not be taxed.
However, the definition of “main” home under the tax policy means a person must explicitly live in the home.
Under the existing “bright line” tax on investment property a person’s main home is defined as the house they spent more than 50% of their time in, where their immediate family lives, and where their personal property is kept, among other characteristics.
Labour has said this definition of a main home would remain.
So, if a person has moved from their family house without selling, to work in another city or for other reasons, any subsequent sale of the property while they are not living there could attract the tax.
A crucial concept: ‘valuation day’
Not only would the tax not apply to property transactions before July 1, 2027, it would also not apply to capital gains before that day, making “valuation day” a critical moment for this tax policy.
If Labour were elected and enacted this policy, July 1 2027 would become “valuation day”, effectively a line in the sand from which point profits on any capital gains on a property could be taxed at the 28% rate.
So, if a house were purchased in 2014 for $550,000, valued on July 1, 2027 at $700,000, and sold in 2030 for $800,000 -- the tax would only apply to any profit on the $100,000 in capital gains accrued after “valuation day”.
The value of a property as at July 1 2027 would be determined through the existing valuation methods, such as by Quotable Value and other comparative valuation services, and the ratings valuations done by councils.
The 2027 valuation would not need to be obtained by the property owner on “valuation day”, but this value would need to be established within five years of “valuation day”.
How the 28% tax works
The tax rate for profits from capital gains would be set at 28% to match the rate that company and investment profits are taxed at.
This new capital gains tax would supersede the existing bright-line test for tax on investment properties, which currently taxes profit from specific investment properties at the income tax rate - which is progressive and can reach 39%.
It is important to emphasise the tax would cover profits from capital gains.
Capital expenditure on a property would be discounted from the gain made at sale, reducing the tax burden. If a property is sold for a capital loss, or for less than was spent on the property, that loss could be “carried forward” to be discounted on future gains at the sale of a similar asset.
So, if an investment property was purchased after July 2027 for $450,000 and the owner spent $150,000 on improvements, for a sale of $750,000, the improvement costs of $150,000 would be deducted from the $300,000 in capital gains. This means, ultimately, $150,000 in profits would be taxed at 28%.
Similar discounts for capital expenditure apply to commercial properties, with more complicated calculations involved when the property includes in-built plant and equipment, such as in the case of factories.
Inheritance excluded, but…
Inheritances are explicitly excluded from Labour’s capital gains tax policy. But there’s a caveat to this.
When it comes to inherited property, the date of inheritance is effectively deemed the “valuation day” for the property. While any capital gains earned on the property before it is inherited would not be taxed, afterwards any gain in the property’s value could be liable for the tax.
Meaning, if two siblings inherit a $1.2 million home from their parents in 2029, it would not matter that the property gained $400,000 in value since it was purchased in 2014.
But if the siblings held onto the property until 2032, and sold it for $1.34 million, the $140,000 in capital gains after the property was inherited would be taxable.