First Home Buyer Choice
First Home Buyer Choice
Article by Georgia Knight, 15 March 2023
The NSW Government is offering first home buyers a choice between paying stamp duty upfront or paying an annual property tax each year.
This option will not suit everyone, however some people may experience a significant financial saving by taking up the annual property tax. You will need to sit down, do the sums, prepare a plan for the future and decide which option will best suit you.
The Choices
(A) A one off upfront payment of stamp duty; OR
(B) An annual payment of property tax. If you purchase the property and sell it one year later then all you have to pay is one year’s worth of property tax. The purchaser of your property does not pay your property tax moving forward. If you plan on living in the property for a long period of time you are probably better off with option A, but if you only plan on living in the property for a couple of years it might be cheaper to go with option B, depending on the amount of stamp duty you would need to pay.
The Calculations
(A) First home buyers are exempt from stamp duty on new and existing homes if the value of the property is less than $650,000.00 and for vacant land if the value of the land is less than $350,000.00.
First home buyers receive a reduction in duty for new and existing homes valued between $650,000.00 and $800,000.00 and for vacant land valued between $350,000.00 and $450,000.00. The rate of duty is still calculated on an ad valorem basis, so if you are purchasing a property valued at $750,000.00 you will be paying more stamp duty than your friend who may be buying a property valued at $670,000.00, however the duty will be less than your other friend who is not a first home buyer purchasing property valued at the same amounts.
First home buyers must pay the full rate of stamp duty for new and existing homes valued over $800,000.00 and for vacant land valued over $450,000.00.
To calculate either the reduced duty payable, or the full amount of duty payable, follow this link to the Revenue NSW calculator https://www.apps09.revenue.nsw.gov.au/erevenue/calculators/fhba.php
(B) The annual payment of property tax will be based on the land value of the property. The tax rates will be indexed each year so likely the tax will increase each year. For 2022 – 2023 the rates are as follows:
(i) For owner occupied properties $400 plus 0.3% of the land value; OR
(ii) For investment properties $1,500 plus 1.1% of the land value.
Example
You are a first home buyer and have found a property you would like to purchase in Sydney for $1.3 million. As the property is over $800,000.00 you are not eligible for the First Home Buyer Assistance Scheme, so you will not receive an exemption or concession from stamp duty, at the time of writing you would therefore need to pay stamp duty of $55,720.00 upon settlement (usually 42 days after exchange of contracts) or if settlement is delayed payment is due 3 months from the date of exchange.
Or, you could choose to pay the annual property tax. To calculate this you take the land value, not the value of the land plus improvements. In this example we know the value of the land is $820,000.00. Using the owner occupied formula from above:
$400.00 plus $2,460.00 ($2,460.00 = 0.3% of $820,000.00) = $2,860.00
Your options are:
(A) A payment of $55,700.00 at settlement (or if settlement is delayed 3 months from the date of exchange); OR
(B) $2,860.00 for 2022 – 2023 and continue to pay the annual tax until you sell the property, it will likely increase each year.
Without factoring in the rise to the annual property tax you would need to own the property for at least 19 years before you reach the amount of stamp duty payable in option A. If you know you plan on selling and purchasing a larger house in say 10 years’ time option B in this instance could provide you with a financial saving.
Eligibility
To be eligible for the First Home Buyer Choice;
• You must be an individual (not a company or trust);
• You must be over the age of 18 years old;
• You, or at least one person you’re buying with, must be an Australian citizen or permanent resident;
• You, or your spouse, must not have previously owned or co-owned residential property in Australia or received a First Home Buyer Grant or duty concessions.
• The property you are purchasing must be worth less than or equal to $1.5 million.
• You must move into the property within 12 months of settlement and live in the property for a continuous period of at least 6 months.
Commencement
The option is only available to those contracts entered into on or after 16 January 2023 however if you sign a contract between the passage of the legislation and 15 January 2023 you may be able to opt into the annual property tax but you will need to pay the stamp duty and then from 16 January 2023 apply to receive a refund of stamp duty.
What will you decide?
Your situation will depend on which option is better for you. There are many risk factors you should consider when making this decision. For example, will it be easy to sell your property in the future? What if your current situation changes and you do not have the ability to sell and purchase another property in the future (noting that at the time of writing you would then need to pay stamp duty on your next purchase)?
Make sure you seek legal advice before you rush into signing any contracts.
Source:
NSW Government website
https://www.nsw.gov.au/initiative/first-home-buyer-choice
Revenue NSW website
https://www.revenue.nsw.gov.au/grants-schemes/first-home-buyer/assistance-scheme