A new initiative by the NSW government, exclusively for first home buyers, has been introduced from 16 January 2023. This initiative allows first home buyers purchasing homes valued up to $1.5 million, or vacant land valued up to $800,000 to choose between paying stamp duty or an annual property tax. In NSW, stamp duty is also referred to as ‘transfer duty.‘ Now, to assist first home buyers, the NSW Government has introduced the First Home Buyer Choice initiative. For more details about the program, including eligibility requirements and terms and conditions, read more on the NSW government website: https://www.nsw.gov.au/initiative/first-home-buyer-choice.
What is Stamp Duty?
Stamp duty, also known as transfer duty, can be a burdensome expense, particularly for first home buyers who struggle to save a deposit in today’s rapidly escalating housing market. Stamp duty is a one-time tax charged when acquiring property or land, often amounting to tens of thousands of dollars. If you wish to learn more about stamp duty, you can speak with one of our friendly team members.
Why go for an annual property tax over Stamp Duty?
Choosing an annual property tax over a substantial one-time payment when buying a home can effectively reduce the obstacles to becoming a homeowner. The annual property tax system provides a more manageable and convenient approach to budgeting and saving, in contrast to the upfront burden of paying tens of thousands of dollars associated with one-time stamp duty.
Why is the choice only available to First Home Buyers?
The NSW Government has expressed its intention to extend the choice between stamp duty and property tax to a larger portion of the population, potentially encompassing up to 80 percent of all home buyers. However, the current availability of the choice exclusively for first home buyers serves as a trial for the scheme, prioritising those who are disproportionately impacted by the upfront cost of stamp duty. This approach is a positive step forward, considering the decline in home ownership rates, particularly among the younger generation and individuals with lower incomes.
How to Calculate the Property Tax
The formula for calculating the annual property tax is as follows:
Annual property tax = $400 + 0.3 percent of land value
The tax will be increased annually in line with inflation, but it will be capped at 4 percent.
The ABC provides an example: Let’s consider Belle, a first home buyer. If Belle purchases a $1.35 million house with a land value of $810,000, she can choose to pay either:
- Stamp duty = $59,125 upfront
- Property tax = $2,830 per year.
Belle would be better off choosing the new property tax option, if she plans to live in the home for fewer than 20 years before relocating.
What other schemes could you be eligible for?
In addition to this newly introduced option, other first home buyer schemes will remain available for purchasing property in NSW. The First Home Buyer Assistance Scheme (FHBAS) provides an exemption from stamp duty (also known as ‘transfer duty’) for properties valued below $650,000 (or vacant land priced below $350,000). Concessions are also offered for homes up to $800,000 (or vacant land valued up to $450,000) under this scheme.
Plus, there’s the First Home Owners Grant (FHOG), which gives you $10,000 towards the expenses associated with purchasing a newly constructed home valued below $750,000.
Can I opt for the Annual Property Tax for properties outside NSW?
Currently, NSW is the only state in Australia that offers first home buyers the option to choose between stamp duty and property tax. The ACT government took the initiative to gradually eliminate stamp duty starting from 2012, with a phased approach spanning over a 20-year period to ensure minimal impact on current homeowners. It is likely that other states may adopt similar approaches in the future, following the lead of NSW and the ACT government.
How do I choose between Annual Property Tax and Stamp Duty?
If you’re a first home buyer in NSW, here’s how you can consider the facts when deciding between stamp duty and property tax:
- Understand: Firstly, familiarise yourself with the differences between paying a one-time stamp duty and an annual property tax. By reading this article, you’ve already completed this crucial first step!
- Calculate: Use the NSW Government’s calculator to compare the costs of property tax versus stamp duty. Utilise the calculator multiple times if you’re looking at different properties or house and land packages.
- Look ahead: Consider whether your first house is likely to be your long-term residence or if you anticipate moving within the next decade or so. The sooner you anticipate moving, the more financially advantageous choosing the annual property tax option may be.
- Current finances: You have a deposit but lack sufficient savings for stamp duty, selecting the annual property tax option could expedite the buying process. If you have enough savings to cover both the deposit and stamp duty, you could consider the once-off stamp duty instead!
For a better understanding of how these factors apply to various scenarios, visit the NSW First Home Buyer Choice website for additional examples. The introduction of the choice between an annual property tax and stamp duty represents a significant shift in purchase-based taxation, marking the first major change in a considerable period of time. This development brings positive news, especially for first home buyers like yourself!
If you’re ready to take the next steps with our house and land packages, feel free to reach out to our friendly team today. You can call us at 1300 733 193 or fill out this form!