The Choice for First Home Buyers to Choose Land Tax Over Stamp Duty
The NSW Stamp Duty Laws are changing. We have prepared a brief summary as to those changes and how they may impact you.
Set out below is a definition of key terms, description of their application and most importantly dates from which the new Laws will be in effect.
Stamp Duty Background
In NSW, buyers have to pay stamp duty.
If you are a first home buyer, you may not have to pay stamp duty.
The rule is as follows:
- If you are a first home buyer and the value of a property less than $650,000.00, you are entitled to stamp duty exemption (that is, you do not pay stamp duty).
- If you are a first home buyer and the value of the property is between $650,000.00 and $800,000.00, then you are entitled to get a discount on the payable stamp duty.
- If you are a first home buyer and you are buying vacant land, and the value of the vacant land is no more than $350,000.00, then you may be entitled to stamp duty waiver or reduction.
On the other hand, if a buyer does not fit into these categories, then stamp duty is payable in full.
You must be mindful that these rules apply to the State of New South Wales only. Different States have different rulings.
The Problem with First Home Stamp Duty Assistance/Exemption
The main problem with the above assistance to first home buyers with regards to stamp duty is that: it is difficult in the current market to find a property under $650,000.00.
First home buyer then either elect to buy a property under $650,000.00 that they are not happy with, or, choose a property that is above $800,000.00 that they are happy with buy they miss on the stamp duty assistance.
The New South Wales Government has proposed a solution to this problem: First Home Buyer Choice.
What is First Home Buyer Choice?
The First Home Buyer Choice is as follows:
- If you are a first home buyer and the value of the property is up to $1,500,000.00, you have the following choice:
- Pay the full stamp duty. In this example, a property valued at $1,500,000.00 has an estimated stamp duty payment of about $66,700.00; OR
- Pay annual land tax. This payment is payable each year. The standard percentage of land tax is 1.6% on the value of the LAND (not the Property itself).
If a first home buyer intends to live in the property for many years, then it may be beneficial to elect to choose paying stamp duty in full. On the other hand, if the first home buyer intends to live in the property for a short period of time, then perhaps electing to choose payment of annual land tax can be more beneficial.
When the First Home Buyer Choice Starts?
There is a misconception in the market that the First Home Buyer Choice is already in effect. That is not the case.
The NSW Government has announced a plan to introduce the First Home Buyer Choice. This plan has not yet become law.
Provided that the NSW Government passes the law on time, then the anticipated date from which the First Home Buyer Choice applies is the 16th of January 2023.
We do not recommend that you sign any contract in reliance on the date of 16th of January 2023 being the applicable date. You must ensure to check with your solicitor or conveyancer before signing any contract to ensure that the First Home Buyer Choice applies to you.
For more information, feel free to contact the writer or visit our website.
