First Home Buyer Choice: NSW Property Tax vs Stamp Duty
Buying your first home is an exciting time, but it can also be stressful. You need to think about many things and take action on some of them. Picking the right location and understanding what works best in terms of pricing are just some of the factors you need to consider. In this blog, we will provide first time home buyers with everything they need to know about land taxes and stamp duty in NSW. We will give an overview of what these taxes are, how they are calculated and paid, and what exemptions and concessions are available.
The government of New South Wales is now extending a benefit to first-time homeowners in an effort to improve home ownership in the state. Under the new policy, buyers would pay a small amount in land tax rather than a lump sum in stamp duty. However, as with any policy, there are a lot of checks and constraints put in place as to who can or cannot avail this benefit. The new land tax rule in NSW for home buyers who sign a contract of purchase on or after 16th January 2023 but can be retrospectively applied to any eligible purchaser who has signed a contract from 11th November 2022. This initiative will make a significant difference to the purchaser, thereby adding approximately $67,000 to the purchase price on a 1.5M home.
Now let’s take a look at the key points and eligibility. This will help you get a better understanding of the process and what you need to do in order to qualify.
- Applicable to first time home buyers only.
- It applies to purchases up to $1.5M.
- You can choose between paying stamp duty all at once or annually as land tax.
- This does not apply to subsequent purchasers of property.
- Existing stamp duty concessions for first home buyers for purchases up to $800,000 will continue.
- The annual property tax will only be applicable to the land value of the property that is purchased.
- If the property is sold further to:
- a. a non-first-home buyer, the new purchaser will pay stamp duty as normal; or
- b. a first-home buyer, they can choose to pay either stamp duty or annual property tax.
- The decision to pay property tax must be made before the property settles.
- If the property holding timeframe is more than 17-18 years, the property buyer ends up paying more than the one-time stamp duty.
Individuals must meet the eligibility criteria in order to apply
- Purchasers eligible for the scheme must be over 18 years of age.
- At least one of the purchasers must be an Australian Citizen or a Permanent Resident.
- None of the purchasers should have owned or co-owned a residential property in Australia, or received a First Home Buyer Grant or duty concessions in the past.
- The property must be valued at less than $1.5 million dollars.
- The purchaser must move into the property within 12 months of purchase and live in the property for a continuous period of 6 months or more.
- The contract of purchase must be signed after 11th November 2022.
Start of the scheme
The scheme will come into effect for all properties that are sold after 16th January 2023. However, it can be applied retrospectively to all first home buyers who signed a contract after 11th November 2022.
- For first home buyers who sign the contract after 11th November 2022 and settle the property after 16th January 2023, they will be able to choose to pay their property tax as normal.
- However, for those first home buyers who sign the contract after 11th November 2022 and settle the property before 16th January 2023, they will have to pay the full stamp duty initially and then apply for a refund of the stamp duty after 16th January 2023.
For any settlement on or after 16th January 2023, and if the purchaser has chosen property tax, they will not be liable for stamp duty.
Difference between Stamp Duty and Property Tax
According to the stamp duty and property tax rates for 2022-23 and 2023-24, the stamp duty and property tax is calculated as follows:
One-time Stamp Duty:
Currently, the stamp duty is calculated using a tiered system based on the price of the land or an established property. The table to calculate the stamp duty is given below:
|Value of property||Rate of duty|
|$0 - $14,000||$1.25 for every $100 or part of the dutiable value|
|$14,001 - $30,000||$175 plus $1.50 for every $100 or part, by which the dutiable value exceeds $14,000|
|$30,001 - $81,000||$415 plus $1.75 for every $100 or part, by which the dutiable value exceeds $30,000|
|$81,001 - $304,000||$1,307 plus $3.50 for every $100 or part, by which the dutiable value exceeds $81,000|
|$304,001 - $1,013,000||$9,112 plus $4.50 for every $100 or part, by which the dutiable value exceeds $304,000|
|Over $1,013,000||$41,017 plus $5.50 for every $100 or part, by which the dutiable value exceeds $1,013,000|
|over $3,040,000||$152,502 plus $7.00 for every $100 or part, by which the residential property exceeds $3,040,000.|
As mentioned, this is payable only one time but there are concessions applicable for eligible home buyers up to the property purchase price of $800,000. There may be a mortgage registration fee and land transfer fee of approximately $147.70 each respectively.
Annual Property Tax:
|Homeowners||$400 plus 0.3% of land value|
|Investors||$1500 plus 1.1% of the land value|
Each year, these rates will be indexed. However, annual property tax will be capped at a maximum of 4% per year. For properties that would be owned for less than a full financial year, annual property tax would be pro-rated based on the number of days in the financial year that the property is owned.
We hope you have been able to understand how the stamp duty and property tax system works for first time home buyers. Here are some examples that will provide you with a clear understanding:
Tim and Josie decided to purchase a house in Central Coast, NSW for $650,000. The land value in the area is $340,000. They determined that, for them, it would be better to buy an established home or land and build rather than claiming upfront grants. This scheme strongly discourages buyers from turning their property into an investment.
John and Jonaa decided to buy an apartment around Rydalmere, NSW for $750,000. The land value in the area is $270,000. This option is better suited to their needs than buying land and building, and they plan to enter the market and upgrade to a home in 5 to 8 years’ time. If they hold the property for any more than 18 – 20 years, paying one time stamp duty might be a viable option than annual property tax longer term. However, this scheme strongly discourages buyers to turn their property into an investment.
Manny and Anna recently bought a home in Quakers Hill, NSW. In the next 20 years or so, they plan to upgrade to a bigger home, or downsize and retire. Paying annual land tax could be a viable option for them, as it would reduce their upfront costs. If they plan to hold the property for more than 18-20 years, though, it might be better to pay one-time stamp duty rather than property tax over the long term. This scheme strongly discourages buyers from turning their property into an investment.
Matt and Kim bought a home in Schofields, NSW with the intention of upgrading to a bigger home or retiring/ downsizing in approximately 20 years. Paying annual land tax could reduce the upfront costs for Matt and Kim, but if they plan to hold the property for longer than 18-20 years, it might be more beneficial long-term to pay stamp duty in one lump sum. This scheme would make it less likely for buyers to turn their property into an investment.
We hope you found this article helpful in making your decision on how to finance your first home. Congratulations on your decision to purchase your first home. If you are struggling to decide which method of payment is best for you, we recommend you call us to discuss your options. We will be more than happy to advise you on a payment method that will suit your personal needs and financial situation.
Here are some links that may be helpful to you as a first-time home buyer:
First Home Buyer Choice NSW information:
First Home Buyer Choice Calculator:
First Home Buyer Grants and Assistance:
First Home Buyers Assistance Calculator: