Labour’s capital gains tax: sell and pay 28%, hold until death and pay nothing
 | Author: Kieran Trass Head of Research, Staircase. Property cycle analyst and author of five books on the New Zealand market. |
Under Labour’s capital gains tax as written, an investor who sells pays 28% on the gain. An investor who holds until death pays nothing, and their heirs never pay tax on that past gain either. That is why the first Housing Compass report gave a verdict of “no” on Labour’s first claim: that the tax will move money out of property and into businesses.
What Labour says the tax will do
Labour says too much of New Zealand’s wealth is locked in property. It says the tax will free that money up for businesses, innovation and jobs, but has not said how it would measure that.
It also says the money the tax raises will go to health.
What the design actually does
The tax is paid when you sell and waived while you hold. Every year an investor keeps a property is a year the tax does not apply. And because death is not treated as a sale, holding until death removes the tax altogether.
Kieran Trass, Head of Research at Staircase, shows this with one investor and two choices. She owns a rental worth $800,000 on 1 July 2027, the day the tax would start. The example is for illustration only.
Same investor, same property. She pays 28% for doing what Labour asks, and nothing for doing the opposite.
Labour’s diagnosis is that wealth is locked in property. The design adds another lock.
Inflation makes selling cost more
The gain is not adjusted for inflation. So the investor who sells pays tax on the part of the price rise that is just prices going up generally.
At 2% inflation a year, an $800,000 rental is worth about $975,000 after 10 years. That $175,000 “gain” is all inflation, and at 28% the tax on it is $49,000. The investor who holds pays none of it.
The longer the hold, the bigger the gap between the two choices.
Who this affects most
Older investors feel it first. An investor who sells to fund their retirement pays the tax. One who keeps the property pays nothing, and passes it on tax-free.
Business owners looking for investment also lose out, because the money they need stays in property until the owner sells.
What would bring the design closer to Labour’s goal
The report suggests two changes that would make the tax do what Labour says. Neither drops the tax.
Tax the gain at death, or pass the starting value on to the heirs. Either the estate pays at death, or the heirs inherit the 1 July 2027 starting value and pay when they sell. Holding forever stops being the tax-free exit. This is the only change that serves both of Labour’s main aims: moving money out of property, and raising more for health, sooner.
No tax if the money goes into a business. The tax is deferred when the sale proceeds go into a qualifying business within a set time, such as two years. The tax then falls on the investor who cashes out, not the one who does what Labour asks. The trade-off is less money for health, and Inland Revenue would have to define “business” and police it.
How we will know
If the tax goes ahead, the report sets a baseline of the 12 months before it starts, then checks the results on 1 July 2028, 2030 and 2032. Two measures will show whether money has moved out of property:
The share of homes bought by investors, with existing homes and new builds tracked separately (Cotality report).
Business investment levels according to Stats NZ.
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