Stamp duty to be replaced by property tax in NSW

Find out how the NSW government's First Home Buyer Choice could affect you

29 June 2022|4 minute read

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If you’re planning on buying a property, you’ll probably be aware of the many costs that come with the purchase. Stamp duty is one of the most expensive upfront costs and has been a financial hurdle for many home buyers.

In an effort to make buying a home easier for people in NSW, NSW Premier Dominic Perrottet has announced that first home buyers will be given the option to choose an annual property tax in place of paying stamp duty.

We’ll explore what this means and how first home buyers in NSW will be affected. 

Is NSW getting rid of stamp duty?

Borrowers will have the option to either pay stamp duty (also known as transfer duty) or an annual property tax. This tax, under the new First Home Buyer Choice reform, was introduced in the 2022-23 NSW budget.

This new reform was created to help make the property market more accessible for first-time buyers in NSW.

Why is the First Home Buyer Choice being introduced?

In NSW, home ownership has dropped 6% over the past 30 years.1 This decrease is largely due to skyrocketing house prices, which have taken a noticeable toll on younger and lower-income groups.

In just the past 2 decades, the percentage of first homeowners below the age of 35 dropped from 67% to 61%.2

The NSW Premier shared that First Home Buyer Choice was created to support more aspiring first home buyers by lowering the costly upfront expenses of buying a home.

It’s estimated that stamp duty takes an additional 2 years to save up for.1 This is based on the average NSW household saving 15% of their median income of $1,786 per week.3

This new state government initiative, in addition to existing stamp duty concessions and exemptions, are expected to help 97% of first home buyers (or 55,000 home buyers) each year.

What’s happening to house affordability in NSW? 

In Sydney, median house prices have grown 280% in just 20 years, increasing from $418,000 to $1.59 million. Stamp duty costs have grown by 406%2, jumping from $14,300 to $72,400. 

NSW has not only become the most expensive state to live in within Australia, it’s also topped the charts as one of the least affordable places to live in the world.

According to the Demographia International Housing Affordability report, Sydney has the second least affordable housing market in the world4, only coming second to Hong Kong.

How much is the new property tax in NSW?

The new property tax is calculated using this formula: $400 + 0.3% of the land value of the property.

How much is stamp duty?

Stamp duty is calculated on a sliding scale. That means the higher the value of your property, the more stamp duty you’ll need to pay. 

As a general guide, stamp duty might cost you around 3-4% of the property’s value. 

Try Aussie’s Stamp Duty Calculator to find out how much you might need to pay in stamp duty fees.

How does the new property tax work?

Let’s say you’re planning on buying your very first home – a spacious $740,000 apartment in Ashfield. The current land value is $250,000. 

If you chose to pay stamp duty, as a first home buyer you would be charged a concessional rate and owe roughly $19,000 in stamp duty charges. 

If you chose to opt into the First Home Buyer Choice reform, you would pay 0.3% of the value of the land, plus the $400 annual levy. 

So, you’d end up paying 0.003 x 250,000 + 400 = $1,150 per year (given the land value stays the same) in place of paying stamp duty. 

Who is eligible for the new property tax in NSW?

The new property tax will be available to first home buyers in NSW purchasing a property for up to $1.5 million. The scheme will be open to eligible home buyers from January 16th, 2023.

To be eligible for this scheme, you will need to:

  • Be 18 years or older
  • Be an Australian citizen or permanent resident if you are applying as an individual. If you are applying as a couple, at least one of you will need to be an Australian citizen or permanent resident
  • Buy a property valued at up to $1.5 million
  • Move into the property within 12 months of purchase and use it as your principal place of residence for at least 6 months.

You will not be eligible if you have:

  • Previously owned co-owned residential property in Australia
  • Received a First Home Owner Grant or stamp duty concession.

Stamp duty exemptions for properties valued up to $650,000 and stamp duty concessions for properties valued between $650,000 and $800,000 will stay in place.

However, first home buyers will not be able to opt into the property tax scheme if they have received a First Home Owner Grant or stamp duty concession. In this case, they’ll need to pay stamp duty charges.

Can you choose between stamp duty and property tax?

Yes, you still have the freedom to choose between stamp duty and property tax if you’re eligible for property tax.

If you aren’t eligible for property tax, you’ll need to pay stamp duty as normal. 

Will you need to pay property tax if you buy a home from someone paying property tax?

No, you won’t be required to opt into property tax if you buy a house from someone who has opted in.

Only first home buyers will have access to the First Home Buyer Choice reform, so if you’re not a first home buyer, you will need to pay stamp duty as normal.

On the other hand, if you are eligible for property tax, you will be free to choose between this or stamp duty. 

Is stamp duty changing in other states?

For the time being, stamp duty rules will not be changing in other states and will not be affected by the new change in NSW.

Want to learn more about the stamp duty changes in NSW and how they might affect you? Chat to an Aussie Broker and get the answers you’re looking for.

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