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NSW: First home buyers can skip stamp duty, but you’ll pay a tax for life

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If you're buying a more expensive home this could save you money, but buyers at the lower end of the market can save by just paying stamp duty upfront.

  • First home buyers purchasing homes for up to $1.5 million can choose to skip stamp duty.
  • Instead they'll pay an annual property tax of $400 plus 0.3% of the property's land value.
  • You'll pay this tax annually for life, but if you sell the property you're off the hook.
  • These changes take effect from 16 January 2023.

The New South Wales government announced changes to stamp duty aimed at making "home ownership a reality for more NSW families." The move will slash upfront buying costs for most New South Wales first home buyers by tens of thousands of dollars.

That is, if they choose to avoid stamp duty. And they might actually be better off paying it.

Upfront stamp duty versus an annual property tax

Here are some quick numbers. The median Sydney property price right now is an eye-watering $1,120,836. With current stamp duty rates you would pay $46,524 in stamp duty in New South Wales.

Outside Sydney, the regional state median is $746,839, meaning a stamp duty bill of $20,213 (with a first home buyer discount).

Avoiding this tax completely is a huge saving for first home buyers. That money can go directly into your deposit. But the annual tax you'd pay may end up costing you more than stamp duty.

The annual property tax is $400 a year, plus 0.3% of your property's land value. Not the property price but the land value, which is a lot less.

According to the HIA-Corelogic residential land report, the median Sydney residential land value in 2021 was $546,500. So your annual property tax on this figure works out to $2,039.50. An expensive lifetime tax.

It would take you over 22 years for that tax to cost you the same as the stamp duty bill on the current Sydney median price. But people buying cheaper properties (and qualifying for discounted stamp duty) could be better off paying stamp duty upfront.

Let's say you've purchased a $700,000 home in New South Wales. As a first home buyer, stamp duty costs you $10,435. Assuming your land value is the Sydney median, the annual property tax would cost more than that in just over 5 years.

Finder credit cards expert Amy Bradney-George is a recent first home buyer in regional New South Wales. While she didn't have the option to avoid stamp duty, she says she'd still pay upfront today if she had the choice.

"I don't know the exact value of my land, but even at a conservative estimate this annual tax option would cost me and my husband more than the stamp duty in about 6 years."

"Seeing as we both plan on staying here for longer than 5 years, the potential cost of this plan doesn't make sense compared to what we paid in stamp duty."

How to crunch your New South Wales property costs

To find the value of your property's land you can use the NSW Valuer General's tool.

But to use that you'll need your property number. If you don't have that number handy you can also find it here. Just enter your address, grab the property number and use the other tool to find the land valuation.

Once you've done that, work out 0.3% of the land value and add $400. That's your annual tax bill if you don't pay stamp duty upfront.

You can compare this to the cost of stamp duty. If you have a sense of how long you're going to live at the property, you can really estimate the difference. If you're not staying long, stamp duty is expensive. If this will be your home for a decade or more, the annual tax could cost more.

Here are 2 examples:

When stamp duty costs more

  • You buy an $800,000 property in New South Wales as a first home buyer (the land value is lower, at $500,000).
  • Your stamp duty is $31,305.
  • If you went for the annual option, you'd pay $1,900 a year.
  • It would take you just over 16 years for the annual tax to cost as much as stamp duty.
  • If this is your starter home and you plan to upgrade in a decade, the annual option may be cheaper.

When the annual property tax costs more

  • You buy a $680,000 property in New South Wales as a first home buyer (the land value is lower, at $350,000).
  • Your stamp duty is $6,261 (with a first home buyer discount).
  • If you went for the annual option, you'd pay $1,450 a year.
  • It would take you just over 4 years for the annual tax to cost as much as stamp duty.
  • Unless you're planning to move in a very short time, it makes much more sense to pay stamp duty upfront.

Choosing the best tax option for you really depends on your individual circumstances. First home buyers at the lower end of the market, who qualify for heavily discounted stamp duty, end up paying more with the annual property tax.

But buyers of more expensive properties, who face big upfront stamp duty costs, could save with the annual method. Even if they stay put for years.

Along with the stamp duty news, the New South Wales government has also announced a new shared equity scheme for buyers with 2% deposits. It's aimed at older single buyers, single parents, teachers, police and nurses.

Need a home loan? Check out some of the market's lowest rates. Check out our deposit guide if you need help saving for a house deposit.

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