First Home Buyer Choice: Annual Property Tax vs Stamp Duty

Property prices might be falling in NSW off the back of multiple interest rate hikes. But with the typical Sydney house and apartment valued in November at $1.24 million and $781,600 respectively, it’s safe to say getting on the property ladder remains challenging for many first home buyers.

The biggest hurdle is saving for a deposit and the other associated purchase costs, such as stamp duty, conveyancing fees home loan application fees and property inspections.

Of those, stamp duty is the most expensive – costing more than $40,000 for a $1 million property.

So it’s great news that eligible first home buyers in NSW now have the option to pay a smaller annual tax instead of stamp duty after legislation passed the state parliament in November.

Premier Dominic Perrottet said the First Home Buyer Choice scheme would be a game-changer for first home buyers, helping families get the keys to their first home sooner.

“The great Australian dream of home ownership just got much easier for a generation of young families,” Mr Perrottet said.

“For the first time we will provide first home buyers with a choice, helping thousands of people to shave around two years off the time needed to save for a deposit.

“People can now save huge sums of money on the biggest purchase of their life.”

How does the First Home Buyer Choice work?

Under the scheme, eligible first home buyers who purchase a property and opt into the property tax will pay a fee of $400 plus 0.3% of land value for owner-occupiers

So let’s say you’re buying a house for $1 million. Rather than paying an upfront stamp duty of $40,090, you can choose to pay an initial annual property tax of $1,900.

This option will be available for all properties up to $1.5 million.

When does it start?

First Home Buyer Choice begins on 16 January 2023.

But any eligible first-home buyer who makes a purchase from November 12 until January 15 can still opt into the annual property tax, before applying for a refund on the stamp duty they paid.

What about existing first home buyer concessions?

Existing stamp duty concessions for first home buyers won’t change.

That means first home buyers purchasing properties up to $650,000 will not pay any stamp duty or the annual property tax.

First home buyers purchasing properties between $650,000 and $800,000 can choose to pay either the current reduced concessional stamp duty amount or the annual property tax.

What happens when a property subject to the property tax is sold?

The property tax option is only available for first home buyers.

This means that if the new owners are first home buyers they’ll be given a choice between paying the annual tax or stamp duty. All other purchasers will pay stamp duty as normal.

What happens if the property gets rented out as an investment?

First home buyers can convert the property into an investment property as long as they:

• Live there for a continuous period of at least six months
• Notify Revenue NSW of the change of use

You will then be required to pay a higher annual tax, currently set at $1,500 plus 1.1% of the property’s land value.

Are you better off paying stamp duty or a property tax?

Everyone’s situation is different, so there isn’t one answer. You can use this online calculator to assess your options.

That said, NSW Treasury has crunched the numbers and found most first home buyers would be better off choosing the land tax.

That’s because the median time people hold onto their properties in NSW is 10 years. So the total paid in annual property tax will generally work out less than paying upfront stamp duty as the table below shows.

Can you opt for the property tax and then change your mind?

No.

Once this choice is made, it’s made – so you will have to pay the annual tax until you sell the property.

Looking to break into the market? Shore Financial can help. To discuss your options, call us on 1300 416 700, email us on info@shorefinancial.come.au or fill in this online form.