NSW first home buyers can now choose upfront stamp duty or annual land tax: here's how it works

Eligible first home buyers in New South Wales (NSW) now have the option of paying an upfront stamp duty or an annual land tax that’s based on their property’s value.

The First Home Buyer Choice scheme came into effect today - 16 January 2023 - but first home buyers who purchased a property from Friday 11 November 2022 can receive a refund on their stamp duty if they qualify and switch to the annual tax.

The NSW government estimates that at least 6,000 first-time home buyers will choose to take on the new land tax scheme each year, while Revenue NSW estimates that up to 2,500 people will apply for a retrospective refund - which should be processed within 10 business days.

Eliminating the obligation of stamp duty reduces up-front costs for first home buyers and, depending on your home’s value over time and the implications of future legislative changes, may save you thousands of dollars, particularly if you have intentions of selling your home within a particular time frame.

How does the First Home Buyer Choice scheme work?

Owner-occupiers who buy a property, up to $1.5 million, can avoid a lump sum stamp duty payment and instead pay an annual levy of $400 plus 0.3 per cent of the property’s land value.

First home buyers that plan to purchase a property for the purpose of investment will need to pay a higher levy of $1,500 per year in addition to 1.1 per cent of land value.

Land values are calculated 1 July each year by the NSW Valuer General. They do this by assuming the land is vacant, valuing it on its highest and best permitted use based on the council's current zoning and planning restrictions.

If the land’s development exceeds those restrictions, they instead value it on its higher existing use. The Valuer General offers a breakdown of the state’s valuation method. The land tax rates will be indexed each financial year, so that the average property tax payment rises in line with average wages. 

For properties that are owned for less than a full financial year, a pro rata adjustment will be made based on the number of days in the year the property is owned.

“The scheme will offer support to about 97 per cent of all first home buyers, or about 55,000 people per year,” according to the NSW Government.

The state government has a property tax calculator that you can use to estimate which option - one-off stamp duty or ongoing land tax - might offer the best value for your purchase. You can search specific addresses to calculate the different tax costs. These calculations are subject to fluctuations in your home’s value and future land tax rates.

Here’s an example explaining how the scheme might work for a prospective first home buyer:

You buy an apartment in a suburb of Sydney for $750,000. The property has been calculated to have a land value of $270,000. If you’re an eligible first home buyer, you’ll need to pay concessional stamp duty of $20,870.

In 2022-23, the annual property tax on the apartment would be $1,210. If you intend to upgrade to a larger home in the next five to ten years, you might take up the First Home Buyer Choice as this tax option may save you money, even though you qualify for other first home buyer tax concessions.

NSW Treasury modelling found that it would take a first home buyer, paying the annual land tax on a $1.5 million apartment, 63 years before reaching the cost of upfront stamp duty paid in today’s dollars. A $1.25 million apartment would take 52 years to realise the equivalent stamp duty value, while a $1 million house would take 23 years.

Eligibility

• You must be an individual (not a company or trust) and over 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 
• You or your spouse must not have received a First Home Buyer Grant or duty concessions
• The property you are buying must be worth less than or equal to $1.5 million
• You must move into the property within 12 months of purchase and live in it continuously for at least six months
• You must sign the contract of purchase on or after the scheme commencement date

What happens when a property under the scheme is sold?

The scheme only targets first home buyers, so all other purchasers must pay stamp duty as normal. There will be no changes to existing stamp duty concessions for first home buyers, which are available on purchases up to $800,000.

If you buy a property from somebody who is paying the annual land tax, you will not be subject to the property tax - unless you’re also an eligible first home buyer and choose to adopt the scheme.

Stamp duty or an ongoing land tax are important budgetary considerations. It’s sensible for homebuyers, investors and refinancers to look beyond interest rates and compare all the features and benefits of a range of home loans.

One fast option for comparing home loan offers is to look at their Real Time Ratings™. These star ratings are based on a combination of each home loan’s cost and flexibility, and are updated daily to help improve their accuracy. To make things even simpler, RateCity’s home loan Leaderboards rank home loans in different categories, with the top-rated products potentially becoming eligible for consideration in RateCity’s Gold Awards.

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