The Labour party has proposed a targeted capital gains tax (CGT) on profits from the sale of residential investment property and commercial property, with gains taxed at 28%. The tax would apply only to gains made after 1 July 2027, meaning any increase in value that occurs before that date would not be taxed. There is no proposed end date — once introduced, the CGT would apply indefinitely to future gains on affected properties. For example, if an investor purchases a residential rental property for $850,000 in 2028 and sells it in 2032 for $1,050,000, the full $200,000 gain would be taxable at 28%, resulting in $56,000 of CGT. In contrast, if the same type of property was purchased for $700,000 in 2025, valued at $800,000 on 1 July 2027, and later sold in 2032 for $1,050,000, only the gain after 1 July 2027 would be taxed ie. $250,000 ($1,050,000 – $800,000), creating a CGT liability of $70,000.
Everyday homeowners are not expected to be affected because the main home would remain exempt. Other asset classes such as farms, KiwiSaver, shares, business assets, inheritances and personal assets such as vehicles or artwork would be excluded.
We see the inclusion of commercial properties in the CGT as a significant problem. Even in periods of strong market uplift, a material portion of the value created is forfeited. This tends to moderate prices and compress expected IRRs on growth-oriented assets. At the same time, investors remain fully exposed to any market softening, valuation write-downs, or refinance risk. For highly geared investors, this combination of muted after-tax upside and unmitigated downside could accelerate transitions into negative equity, constrain refinancing options, and heighten the overall risk profile of commercial property holdings.