This article is the third in our series on Labour's proposed Capital Gains Tax (CGT), announced in October 2025. You can access our earlier articles here: Labour's capital gains tax: time to think ahead and The uncertain reach of Labour's capital gains tax. This is the first of two articles on the question of valuation. Look out for our second article next week, which looks at Valuation Day versus the alternative, and what compliance will look like once the CGT is running.
Labour's proposed CGT would be forward-looking. It applies only to gains arising after 1 July 2027, meaning that any increase in value before that date would not be taxed. To achieve this, every qualifying commercial and residential property (excluding the family home) would need an opening value on what is called Valuation Day (1 July 2027). Only the profit above that value, realised on eventual sale, would be taxed. To explore what that would look like in practice, we had a conversation with Phil Whittington, Partner at Heuser|Whittington and former Chief Economist at Inland Revenue, and share his thinking here.
Valuation Day
The immediate concern for many property owners will be whether they need to arrange a formal valuation before 1 July 2027. The Tax Working Group (TWG), which Labour has referred to, was clear that it was not proposing that all assets be valued by professional valuers on Valuation Day itself. Instead, the TWG envisaged that taxpayers would have five years from Valuation Day, or until the time of sale if earlier, to determine a value for their assets as at that date. Labour has indicated that, once in government, it will direct Inland Revenue to issue further guidance, so some of this detail would depend on the post-election policy process. Five years sounds generous, but establishing a market value at a specific point in the past is inherently more difficult than a current valuation. Markets shift, comparable sales become harder to find, and memories of a property's condition on the relevant date fade.
Scale
Whittington's expectation is that Inland Revenue would be practical. Rather than requiring formal registered valuations in every case, the legislation could be supplemented by guidance providing acceptable safe harbour methodologies, along with guidance on what information taxpayers should file and retain to support their position. A menu of acceptable methods, each treated as a safe harbour, seems sensible. We should expect that taxpayers would choose whichever is most favourable to them, which may come at some cost to revenue, but the compliance savings are likely to outweigh what is forgone. As Whittington points out, there is a large transaction cost inherent in a Valuation Day transition for a capital gains tax: even a modest per-property cost, a few hundred dollars for something defensible, multiplied across the entire taxable stock, becomes a very large total. Whether some owners sell ahead of Valuation Day and invest in other assets to avoid the CGT net altogether is another question entirely.
Methodology options for taxpayers
Among the likely safe harbour options, rating valuations are a natural candidate. Known as capital values (CVs), these are the figures set by local councils that determine rates bills. Because they already exist and are widely accessible, they offer a ready-made starting point. Their appeal as a safe harbour runs deeper than convenience, however. As Whittington explains, where a taxpayer uses a rating valuation as their Valuation Day figure, two competing incentives naturally keep each other in check. For CGT purposes, an owner wants the Valuation Day figure as high as defensible, since a higher opening value means a smaller taxable gain on eventual sale. But that same rating valuation determines their rates bill, so a higher number costs them money each year. Compare that with a valuation commissioned by the owner themselves, where the incentive runs only one way: every dollar higher reduces taxable gain at no extra cost to the owner. That self-correcting dynamic makes rating valuation an attractive and well-disciplined basis for safe harbour status.
For taxpayers who do not obtain a valuation under any approved method, a default rule would likely apply, most likely a straight-line approach where the total gain across the full ownership period is pro-rated to determine what portion arose after Valuation Day. Whichever method applies, the burden of proof is likely to sit with the taxpayer: if a valuation is later challenged by Inland Revenue, it is the taxpayer who must demonstrate its basis.
Please get in touch with our team if you would like to discuss how Labour's proposed CGT may affect your assets or investments.
