Interest deductibility for rental properties to return

The Government has confirmed landlords will again receive a tax break on interest paid for rental properties from April, a move it hopes will ease rising rents.

Associate Finance Minister David Seymour and Revenue Minister Simon Watts announced the National-coalition Government had agreed to enact the policy, campaigned on by both National and ACT, which will reverse the prior Labour government’s phasing out of interest deductibility for rentals.

But, in a sign that difficult economic conditions and competing demands within the coalition Government are hampering its commitments, the tax break will not be returned as quickly as the National-ACT coalition agreement promised.

From next month, landlords will be able to claim for 80% of interest costs, and from April 2025 this will rise to 100%. Originally, the parties had promised to also restore the ability to claim 60% of interest costs for the 2024 financial year, ending this month. But this is no longer going to occur.

“Help is on the way for landlords and renters alike. The Government’s restoration of interest deductibility will ease pressure on rents and simplify the tax code,” Seymour said, in a statement.

“Landlords have been hit with a double whammy of rising mortgage interest rates and increasing interest deductibility limitations during a cost-of-living crisis. These costs are inevitably passed on to tenants, one of the reasons New Zealand has all time high rental costs.”

He said Labour’s phasing out of interest deductibility had “heaped pressure on landlords and renters alike by reducing the number of rentals, pushing rents up, and making it harder for Kiwis to save for their first home”.

“Competition helps keep prices affordable. Reducing supply reduces the number of options and drives up prices. Removing the ability for landlords to claim interest expenses made residential properties less attractive and reduced the pool of properties for tenants to choose from.”

The changes to this tax setting will be added to legislation already partway through the law-making process.

ACT leader and Associate Finance Minister David Seymour has announced the Government agreed policy to return the interest deductability tax break to landlords and property investors.