Is There Inheritance Tax in NZ? What to Do With an Inheritance, and What the Greens Want to Change

Inheritance tax has been back in the headlines ahead of the 7 November election, sparked by the Green Party's tax proposal. When you've just received an inheritance (or know one is on the way), two practical questions usually come up straight away: will Inland Revenue take a cut, and what's the smartest thing to do with the money once it lands in your account?

Is there inheritance tax in New Zealand?

No. New Zealand abolished estate duty in 1992, and Inland Revenue treats inheritances and gifts from an estate as non-taxable. You don't pay tax just for receiving cash, shares or a house from a parent's or relative's estate.

Still, three tax rules catch beneficiaries out after the estate is paid out:

1. The income your inheritance earns is taxed as normal. The lump sum itself lands tax-free, while any interest, dividends or rental income it produces from that day on is taxable. Put $200,000 on term deposit at the bank and you'll pay resident withholding tax (or PIE tax in a cash PIE fund) on every dollar of interest it earns.

2. Inherited property can sometimes be taxed when you sell it. Under IRD's inherited property rules, transfers from an estate are generally exempt from the residential bright-line test. However, you usually step into the deceased person's shoes regarding their original tax intention. If they bought the property for property dealing or with the intention of resale, a later sale by you can still be taxable, and buying out a sibling's share of an inherited house can start a new bright-line clock on the share you bought.

3. Inherited overseas shares can trigger FIF tax rules. If you inherit direct shares in offshore companies (say in the UK, US or Australia) and the total cost of your overseas shares goes above $50,000, New Zealand's Foreign Investment Fund (FIF) rules can apply. Because working out the cost base of inherited offshore shares gets technical, it's worth getting an accountant to check it early.

What are the Greens proposing for inheritance tax?

As part of its 2026 election tax package, the Green Party has proposed a 33% Capital Acquisitions Tax on lifetime gifts and inheritances received over a $1 million threshold, with exemptions for the family home and family farms. According to 1News (4 October 2026), the tax would be paid by the recipient rather than the estate and would apply to around 1,100 people a year.

Under the Greens' worked example, someone who inherits a $1.5 million family home plus $1.25 million in shares would see the family home excluded completely. Only the $250,000 of shares sitting above the $1 million cap would face the 33% tax.

Will it actually happen? All three of the other major parties have ruled it out. Labour leader Chris Hipkins stated on 4 October 2026 that Labour will not adopt the Greens' tax policies, and neither National nor ACT supports an inheritance or estate tax. Unless a future coalition agreement changes that position, New Zealand isn't bringing in an inheritance tax after 7 November.

What to do first when an inheritance lands in your account

Our best advice for the first few weeks is to do very little. You're often dealing with grief and family admin at the same time, and parking the money in an on-call account or short-term PIE fund gives you breathing room to think clearly. When you're ready to plan, work through these four steps in order:

• Clear expensive consumer debt first. Credit cards at 20%, car loans at 12% or personal loans almost always cost more after tax than a balanced portfolio will earn. Paying them off is an immediate, risk-free win.
• Top up your emergency fund. Setting aside three to six months of household bills in a separate account means you won't have to raid long-term investments when the roof leaks or the car needs replacing.
• Ring-fence money you'll spend in the next one to three years. If part of the inheritance is earmarked for a house deposit, home renovations or school fees, keep it out of the sharemarket. We've compared where short-term savings can sit in NZ across term deposits and PIE funds.
• Put the long-term balance to work. Once short-term needs are sorted, the real choice for most households is how much to put on the mortgage versus how much to invest.

Should you pay off your mortgage or invest an inheritance?

We sit down with clients on this exact question all the time, and the maths is reassuringly clear once you put the two options side by side.

Suppose you have a $600,000 mortgage at an illustrative 5.00% interest rate with 25 years remaining, which costs about $3,508 a month. If you put a $150,000 inheritance onto that loan and recalculate over the same 25 years, your minimum repayment drops to about $2,631 a month. That frees up $877 a month in your household budget and saves roughly $7,500 in interest in the first year alone (or even more if you keep your monthly repayments at $3,508 and shave years off the loan).

Because mortgage interest comes out of your after-tax pay, paying off a 5.00% home loan gives you the equivalent of a guaranteed, tax-free 5.00% return. If you're on the 33% income tax rate, a taxable investment has to earn 7.46% before tax every year just to match that 5.00% mortgage saving (or 6.94% inside a 28% PIE fund).

Why would anyone invest instead? Two reasons: long-term growth and flexibility. Over a 10-to-15-year timeframe, a well-diversified growth portfolio can compound ahead of mortgage rates (we unpacked the numbers in our piece on building a good decade of investment returns), and money in an investment portfolio stays accessible without having to re-apply to the bank.

It doesn't have to be all-or-nothing. Many households use part of an inheritance to knock a chunk off the mortgage when a fixed term rolls over (avoiding a mortgage break fee) and invest the rest for retirement alongside KiwiSaver.

Received an inheritance and want to see how the mortgage versus investment numbers stack up for your household? Book a free 15-minute consultation with one of our advisers to talk through your options.

Why paying off a joint mortgage changes relationship property

There is one legal rule every Kiwi should know before transferring inherited money into a joint bank account or onto the family mortgage.

Under New Zealand's Property (Relationships) Act, an inheritance starts out as your separate property. However, the Ministry of Justice notes that if you mix inherited money with relationship property, for example by using it to pay down the mortgage on your jointly owned family home or putting it into a joint account, that inheritance usually turns into relationship property split 50/50 if you ever separate.

Sharing the inheritance across your family home might be 100% what you want to do. Just make sure it's a deliberate choice rather than an accidental one, and speak with a family lawyer about a contracting-out agreement or loan documentation before you move the funds if you want to keep the inheritance separate.

How we can help

Invicta Financial's advisers can help you build a clear plan for an inheritance, whether that means investing for the long term, reviewing your KiwiSaver, or restructuring your mortgage so a lump sum saves the most interest without triggering unnecessary bank fees. Where you need specialist tax advice from an accountant or relationship property advice from a lawyer, we'll flag that early so everything joins up properly.

Take your time and get a plan on paper

An inheritance is often a once-in-a-lifetime sum of money. Taking a couple of weeks to map out your debt, your mortgage structure and your long-term investments can make a massive difference to where you are in ten years' time.

Want to talk through your options and see what a sensible plan looks like?

Let’s Make it Happen

15 minutes is all it takes. We’ll give you clear, fees-free advice so you can get your ducks in a row

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Sources

• Inland Revenue, Your taxable income (inheritances) and Inheriting property
• Inland Revenue, Foreign investment fund (FIF) rules and $50,000 exemption
• Green Party of Aotearoa New Zealand, "A tax system for all of us" (Capital Acquisitions Tax proposal)
• 1News, Greens' tax policy and Labour's response (4 October 2026)
• KPMG New Zealand, 2026 Election Tax Policy Tracker
• Ministry of Justice, Relationship property: what's included and separate property

General Information Disclaimer

The information in this article is general in nature and is not intended to be personalised financial advice. It does not take into account your individual goals, financial situation, needs, or circumstances.

Any examples, figures, rates, or scenarios are for illustrative purposes only and may change over time.

Before making any financial decision, you should consider whether the information is appropriate for your circumstances and, where appropriate, seek personalised advice from a licensed financial adviser.

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