Upfront stamp duty, or annual land tax.
Perhaps you’ve heard both measures floating in the news recently, have done your Google groundwork, and have reached your own verdict as to whether or not the state government’s reforms are of any benefit to your pocket.
Or, perhaps you’re a first homebuyer, scratching your head over what on earth either means – and whether or not they’re of value. Is this yet another government catch?
If the latter, you’re certainly not alone.
And you can likely relate to the vast majority of home-seekers wanting to step into the market for the first time – uninterested in complex ‘legislation lingo’, and focussed on one thing: how to buy a property, and save maximum dollars in the process.
We’ve taken a deep dive and painted as clear a picture as possible of how to do just that, in the information below.
Stamp duty: What is it, and what’s major about the change?
Speak to any NSW homebuyer, and they’ll probably tell you that stamp duty is one of the highest costs associated with buying a property.
Up until now, it’s existed as a one-off payment that adds a pretty hefty sum – thousands – to the upfront costs associated with buying a home, calculated on the property value, type, and if it’s owner-occupied or an investment.
But with the NSW government’s new ‘First Home Buyer Choice’ scheme, first-time buyers will be given a choice between paying their stamp duty upfront – or alternatively, paying an annual tax or ‘levy’ on the property.
It’s a choice that attempts to lower the initial costs of buying, making it easier for people to get into the market.
But does it?
Given that a significant hurdle preventing young singles, couples and families from buying a home is having enough in savings to lay down a deposit, (factoring stamp duty into this), the reform very well could be.
But first – what is the new ‘property tax’?
It’s defined here as an annual fee based on the land value of your property.
In order to qualify to pay that fee instead of stamp duty, it’ll need to be your first home – and cost under $1.5 million, or $800,000 for vacant land. And depending on what you’re purchasing, that fee could vary.
The NSW Government has outlined the fees for 2022-23 and 2023-24 as follows:
- $400 annually plus 0.3% of land value (for a property you intend to live in)
- Or $1500 annually, plus 1.1% (for a property you intend to invest).
Jessica and Matthew are buying their first home, a $650,000 house, with a land value of $340,000.
- Ordinarily, stamp duty on a $650,000 home would be $24,340, but because Jessica and Matthew are first home buyers, they are exempt from stamp duty and therefore do not choose the property tax.
- In 2022-23, the annual property tax on the house would be $1,420.
One key determining factor to consider is that fees will be indexed each year from 2024-25 – meaning the annual tax you’ll be paying is likely to rise.
Should I consider it?
With the state initially forecasting that two-thirds of first-time buyers will opt against stamp duty – instead choosing the annual tax – it’s worth considering if the new option will benefit you.
To determine which will leave you better off financially, we recommend consulting your bank, broker, lender or financial adviser to weigh up:
- What costs you need to consider for your specific circumstances, such as lender’s mortgage insurance
- What you can afford – and should budget for – in a new home
- What will happen if you need to sell the property
A helpful resource is Service NSW’s current Property Tax Calculator, which can provide a rough estimate of which (stamp duty, or land tax) might be the best value for you.
Don’t forget that other schemes for first-time buyers are still in place, which you can also find here. Get in touch with us if you’re looking for a reliable industry professional, we’re happy to assist!
Prudential Real Estate Campbelltown | (02) 4628 0033 | campbelltown@prudential.com.au
Prudential Real Estate Liverpool | (02) 9822 5999 | liverpool@prudential.com.au
Prudential Real Estate Macquarie Fields | (02) 9605 5333 | macquariefields@prudential.com.au
Prudential Real Estate Narellan | (02) 4624 4400 | narellan@prudential.com.au
