Ditching stamp duty for a property tax? Everything you need to know about First Home Buyer Choice

A new initiative - First Home Buyer Choice - is set to launch in New South Wales, in which first home buyers will be able to avoid the upfront costs of stamp duty, in exchange for paying an ongoing fee.

So, how does First Home Buyer Choice work, and are you better off paying for stamp duty or the annual property tax? Here is everything you need to know about the new initiative.

What is the First Home Buyer Choice?

First Home Buyer Choice is a NSW Government initiative to allow first home buyers to opt out of paying upfront stamp duty and instead pay a smaller annual property fee.

The scheme, announced by NSW Treasurer Matt Kean in his June Budget, is scheduled to start on January 16, 2023. But any first home buyer who makes a purchase from the time the legislation is enacted until 15 January 2023, can apply for a refund of stamp duty and opt into the annual property fee.

The NSW policy is designed to remove one of the largest upfront costs to buying a home and help more first home buyers realise the great Australian dream of home ownership sooner.

How does it work?

When you purchase a property in NSW right now, you pay a one-off stamp duty on the purchase price. Under the First Home Buyer Choice, you will have a choice between paying an annual fee of $400, plus 0.3 per cent of the land value – not the purchase price – or upfront stamp duty.

A first home buyer isn’t forced into one or the other – the choice is theirs to make based on what best suits their financial situation.

For example, a first home buyer purchasing an apartment in Sydney for $830,000, with a land value of $265,000, will have the choice between upfront stamp duty of $32,440 or an initial annual property fee of $1,195. Stamp duty is calculated on the purchase price; the property fee is calculated on the land value. That property fee of $1,195 can be paid quarterly like council rates.

That annual fee is paid only as long as the first home buyer is using that home as their primary place of residence. If they sell the home, they stop paying the fee. The next buyer, if they are a first home buyer, will have the choice of upfront stamp duty or the annual property fee. If they are not a first home buyer, they will be required to pay upfront stamp duty.

When properties that are subject to the annual property fee are sold, subsequent owners do not pay the annual fee – unless they are first home buyers and choose to do so.

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Who is eligible?

Only first home buyers aged 18 and over are eligible to opt out of stamp duty and choose an annual property fee. The purchase price must be $1.5 million or less. You’ll need to be an Australian citizen or permanent resident and move into the home within 12 months of purchase and live in it for at least six months.

• NSW first home buyers will continue to be eligible to apply for full stamp duty exemption for properties up to $650,000.
• Stamp duty concessions will also remain in place for properties between $650,000 and $800,000.

Are first home buyers better off paying a property tax or upfront stamp duty?

The additional savings required to meet the upfront transactional cost of stamp duty, in addition to saving for a deposit, have become a significant barrier for many would-be purchasers. Removing the obligation to pay upfront stamp duty will lower these initial costs and cut about two years off the time needed by many first home buyers to save for a home.

Research published by NSW Treasury found that 50 per cent of homeowners sell their home within 10.5 years. It is believed that first home buyers move more frequently to accommodate growing families.

On that basis, you may be better off paying a smaller annual property fee than upfront stamp duty – but you should always seek independent financial advice.

Is there a calculator to help work out the difference between stamp duty and the property fee?

Yes. A calculator is available online to help eligible NSW first home buyers make an informed choice about whether to choose to pay an upfront stamp duty or a smaller annual property fee.

The calculator will provide figures for the two options available to eligible first home buyers purchasing a home for a price between $650,000 and $1.5 million. It will provide figures for the upfront stamp duty and the annual property fee for the first year. This information will allow first home buyers to assess which option will best suit their financial circumstances.

If you qualify for stamp duty exemptions, do you have to pay a property fee?

If a NSW first home buyer purchases a property for under $650,000, they will remain exempt from stamp duty and not be required to pay stamp duty or a property fee.

What happens if you sell the home and buy elsewhere?

The new owners of your home – if they are first home buyers – will have the choice of upfront stamp duty or a smaller annual property fee. The new owner is not locked in to a property fee just because a previous owner chose that option. If they are not a first home buyer, they will be required to pay stamp duty.

What happens if you move out of the property and it becomes an investment?

If you bought the property as a first home buyer, opted for the annual property fee, and turned it into an investment, your new annual fee rate will be $1,500 plus 1.1 per cent of the land value a year. The NSW policy is specifically designed to help first home buyers get into the property market.

What is the difference between stamp duty, property fee and land tax?

• Stamp duty is a transaction-based tax paid on the transfer of land. The duty is paid by the purchaser of the property, based on the sale price, which comprises the value of land and buildings on the land. It can be a large upfront transaction cost and a significant barrier to home ownership.
• Property fee is an annual fee that will be levied each financial year on an individual property, based on its land value only. A smaller fee in each year of ownership lowers the upfront cost of buying property.
• Land tax applies if you own land that is not used as your principal place of residence or as farmland. It is an annual tax levied at the beginning of each calendar year on the total value of your land above the land tax threshold.

• For more information, please visit the NSW government website.

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