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First home buyers to save with NSW stamp duty reform

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In a bid to improve housing affordability, NSW Premier Dominic Perrottet has announced first home buyers will now be able to choose between paying stamp duty upfront or a smaller annual land tax.

The tax reform, called First Home Buyer Choice, is part of the 2022/2023 NSW state budget which was announced on 21 June.

In this article, we explain how the new stamp duty reform will work, including the eligibility criteria and examples. We also discuss the reactions from experts about how the scheme will impact first home buyers.

What is First Home Buyer Choice and how does it work?

First Home Buyer Choice is a NSW government scheme that gives first home buyers the choice between paying a one-off stamp duty tax or paying an annual land tax.

Stamp duty can be a significant upfront cost for aspiring homeowners. By giving first home buyers the option of paying land tax each year instead of coughing up an upfront stamp duty payment, the NSW government hopes to lower the barriers to entering the property market.

If first home buyers do choose to opt-in to the scheme, owner occupiers will pay an annual land tax of $400 plus 0.3% of the land value of the property.

On the other hand, buyers purchasing an investment property will pay $1,500 per year plus 1.1% of the land value.

Legislation to establish First Home Buyer Choice will be introduced into the NSW parliament in the second half of this year, with the scheme coming into effect on 16 January 2023.

If you’re a first home buyer and you purchase a home after the legislation passes and before the scheme officially starts early next year, you’ll be eligible for a stamp duty refund if you want to opt-in to the scheme and pay land tax instead.

Importantly, properties are not locked into the scheme if they are sold. So, if you purchase a home from someone who has opted into the scheme, you’re not required to also opt-in.

An example of how the scheme could work

Let’s look at an example to see how the scheme could work.

Say you want to purchase a $760,000 property with a land value of $240,000 that you intend to live in. The land tax on this purchase would be $400 + 0.3% of the land value. This calculation looks like:

400 + (0.003 x 240,000)

The total land tax you would pay in 2022/2023 is $1,120.

You can use a stamp duty calculator to work out how much stamp duty you might need to pay when you buy a home.

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Working out how much stamp duty you may be charged and how much an annual land tax could cost you might help you work out whether you want to opt-in to the First Home Buyer Choice scheme or not.

It might also be a good idea to find out if you’re eligible for any stamp duty exemptions or concessions (more on this shortly).

It may be beneficial to take part in the scheme if paying a yearly tax is more cost effective for you than paying a larger one-off stamp duty tax. This might be the case if you only intend to live in the home for a few years.

What is the eligibility criteria for the First Home Buyer Choice scheme?

The government has outlined the eligibility criteria for first home buyers under the scheme. To qualify, you must:

  • Be an individual, not a company or trust
  • Be over 18 years of age
  • Be an Australian citizen or permanent resident. If you are applying as a couple, at least one person must be an Australian citizen or permanent resident
  • Not have owned property before
  • Not have received the First Home Owners Grant or any stamp duty concessions
  • Move into the property within 12 months of purchasing and live in it for at least 6 continuous months.

The scheme is only available on properties worth up to $1.5 million.

Are there other stamp duty schemes for first home buyers in NSW?

If you’re a first home buyer, you might be able to save on stamp duty in other ways in NSW.

You can apply for a full stamp duty exemption if your new or existing home is valued up to $650,000.

If your property is valued between $650,000 and $800,000, you can apply for a stamp duty concession.

If you do choose to take advantage of one of these concessions or the First Home Owners Grant, you won’t be eligible for the First Home Buyer Choice scheme.

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What do experts make of the First Home Buyer Choice scheme?

Experts have had mixed opinions on how they think the NSW government’s stamp duty reform will affect home buyers and the housing market.

Professor Miranda Stewart from University of Melbourne told the ABC she believes the reform is a “good move” because it will help remove barriers that first home buyers can face when purchasing a home.

Arjun Paliwal, the head of research at InvestorKit told Money Magazine that the move away from stamp duty should help aspiring first home buyers who have been kept out of the housing market get onto the property ladder.

However, other experts have argued that the reforms need to go further.

David Hyman, the CEO of Lendi Group, believes the reforms are a good first step but a broader land tax reform including existing homeowners could be more beneficial.

“A broader property tax would reduce the upfront costs of purchasing a home for more Australians and make it easier for existing property owners to buy, sell and move between properties – and even incentivise downsizing,” Mr Hyman said.

Others have echoed this sentiment, with Cameron Kusher, the director of economic research at Proptrack telling Mortgage Business the reforms limit the mobility of existing homeowners who may want to up and move.

While it will take some time to understand the full impact of the reform on house prices, some experts like Brendan Coates, the economic policy program director at Grattan Institute, predict the policy will marginally increase property prices.

Are you wondering how much stamp duty you might need to pay? Lendi’s Home Loan Specialists are here to answer your stamp duty questions. Book an appointment at a time that suits you.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: home loan, first home buyer, new purchase, stamp duty, land tax

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