Buying A House? Do you have to pay stamp duty? It’s up to you.

November 30, 2022
Buying a house

Thinking about joining in the Sydney property obsession as a first-time buyer? You might be eligible to take advantage of changes to the NSW property tax system. Recent changes to the laws have people who are buying a house for the first time asking, Do I have to pay stamp duty?

People who are purchasing a house or land for the first time can now choose between paying a smaller annual property tax or upfront stamp duty when purchasing a home valued up to $1.5 million.

If you buy land with the intention of building your first home, the cap is $800,000.

This program is known as the First Home Buyer Choice scheme and is intended to reduce the upfront costs of buying a home which is often a barrier to first-time buyers.

Before rushing out to buy your first home, it’s worthwhile understanding what the changes are, and what they mean.

So what are the changes?

Stamp Duty or Land Tax

Assuming you’re eligible (more on that shortly), you’ll be able to choose between

  • paying the usual amount of stamp duty based on the value of your property that’s subject to that duty; or
  • paying an annual property tax based on the property’s land value.

Eligible properties are a house, townhouse, unit (whether it’s strata or company title), flat, duplex, or vacant block of residential land you intend to build on.

Here are what the options look like.

Option 1: Paying stamp duty upfront 

Stamp duty is a tax that must be paid before you can settle on the purchase of a property. It represents a literal ‘stamp’ or mark that had to be placed on a document to demonstrate it was legal.

This is the traditional method of tax associated with buying a house and is a hefty amount of money that has to be paid upfront.

But with the changes, new home buyers will now be able to choose whether stamp duty is the right option for them.  

Two important things to note about stamp duty. Firstly, existing first home owner stamp duty and concessions will remain in place for homes under $800,000. If you’re not eligible for these concessions, you’ll be paying the normal rates of stamp duty. Secondly, if you’re a first timer buying a home for up to $650,000, you’re already exempt from stamp duty, so you won’t be expected to choose the second option of property tax. Winner!

Option 2: Paying an annual property tax

In this instance, the tax will be based on the land value of the property. You’ll have to pay this yearly.

The tax rate differs between investment properties (higher rate) and owner-occupier properties (lower rate).

These tax rates are indexed every year so that the payment rises in line with average annual incomes. There’s a cap of 4% on year-to-year growth of tax property tax payments. 

The annual property tax is issued in a financial year, so if you buy mid-financial year, you’ll be required to pay pro-rata for the period you’ve owned the home.

Who is eligible for the First Home Buyer Choice Scheme?

First time Home Buyers

Here are the key eligibility requirements.

  • Individuals (not a company or trust) who are aged 18 years and over
  • You, or at least one person you’re buying with, must be an Australian citizen or permanent resident
  • You or your spouse cannot have owned or co-owned a home in Australia or received another first-home buyer grant or duty concessions
  • You’ll have to move into the property within 12 months of buying it, and live in it continuously for at least 6 months.

Which option should I choose?

When it comes to considering your options, it’s important to think carefully about things like how long you intend to own this property. Remember that the property tax is an annual payment, so the longer you hold the property, the more you’ll be paying in property tax. So if you’re planning to own the property for a long time, it might be more cost-effective to pay the stamp duty. But if you’re planning to move on in a few years, it might be better to choose the property tax.

Before you choose, it’s vital to get specialist advice on what the most cost-effective solution is for you.

What is the process?

First Time Home Buyer Stamp Duty Process

If you prefer to pay the property tax, you’ll need to opt-in by advising your solicitor or conveyancer before settlement. After settlement, you can’t opt into property tax.

When does the scheme become effective?

The Property Tax (First Home Buyer Choice) Act 2022 will come into effect from 16 January 2023. This means that if you sign the contract of purchase on or after 16 January 2023, you’ll be able to choose between the two options.

For eligible buyers who sign a contract of purchase between 11 November 2022 and 15 January 2023, there is a transition period. You’ll also be able to choose the property tax. This involves paying stamp duty during settlement, applying to Revenue NSW for a full refund of the stamp duty, and apply to choose the property tax between 16 January 2023 and 30 June 2023.  You can’t change your mind after Revenue NSW processes the application. 

There’s information out there about the First Home Buyer Choice scheme but as we always say, find an expert who’ll be able to work through all the nuances of the legal changes. Call CM Law and we’ll help you navigate the red tape!

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Thank you for reading this article; please note that this content is accurate at the time of posting but is not updated regularly. The content throughout this site should be viewed as informational and informative but not considered legal advice. We cannot guarantee that any of the information on the website is current and laws are regularly changing. For more accurate information or to obtain proper legal advice, please contact our office today.

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