Under discussion for some time, the NSW government finally passed the stamp duty reform. This means eligible first home buyers will have the choice to pay an annual property tax instead of stamp duty at the time of purchase. This new scheme is called “First Home Buyer Choice”.

The new legislation will allow first home buyers to choose to pay an annual levy of $400 plus 0.3 per cent of the land value, instead of stamp duty on properties worth up to $1.5 million. Although the scheme is not due to take effect until 16 January 2023, the NSW Government will enable first home buyers to make the choice under the new legislation from 12 November 2022.

Stamp duty reform to reduce the time to save for a house deposit

It’s not the big, bold overhaul stamp duty reform that is required; however, the First Home Buyer Choice scheme will significantly assist in reducing the time required for first home buyers to save a deposit in order to purchase a property. Government modelling shows that a first home buyer who purchases a $1 million house, opts into the property tax scheme and sells it 10 years later would save approximately $20,000 in stamp duty costs.

The timing of this stamp duty reform is very welcome, given that first home buyer activity has been softening over the course of 2022 and the cooler property market. The latest data from the Australian Bureau of Statistics shows that new home loan commitments from owner-occupier first home buyers were -37% lower in September 2022 compared to September 2021.

Given the significance of the potential savings that the First Home Buyer Choice program will provide, we expect a steady rise in first home buyer activity over the short term as the new legislation gets enacted and the benefits of the scheme get realised by first home buyers.

The First Home Buyer Choice explained

So who exactly will be able to benefit from the First Home Buyer Choice scheme and how does it work. Here are the answers to your most pressing questions.

What is the choice?

First home buyers purchasing properties priced up to $1.5 million will be able to choose to pay an annual property tax instead of stamp duty. The property tax will only be payable by first home buyers who choose to opt-in and will not apply to subsequent purchasers of a property.

If you choose the pay stamp duty the way it was done until the tax reform, the amount will be calculated using the ‘dutiable value’ of your property. If you decide that you prefer to pay an annual property tax, the amount will be based on the unimproved land value of the property.

Who is eligible?

To be eligible for the First Home Buyer Choice scheme, you must meet the below criteria:

  • Be aged over 18 years old;
  • The property you are buying must be worth less than or equal to $1.5 million;
  • For the purchase of vacant land intended for the construction of a first home, the price cap will be $800,000;
  • You must move into the property within 12 months of purchase and live in it continuously for at least 6 months;
  • You must not have previously owned or co-owned property in Australia.

What are the tax rates?

The annual property tax payments will be based on the land value of the purchased property. The property tax rates for 2022-23 will be:

  • $400 plus 0.3 per cent of land value for properties whose owners live in them
  • $1,500 plus 1.1 per cent of land value for investment properties.

If you’d like to get an estimation of how much property tax you should be paying, you can use this calculator.

Helpful links to find out more

Here are some links which provide more information on the changes:

We’re here to help also

Keen to make the leap from renter to homeowner? Or move away from the parents?  If so, you’ll be busy researching the market and learning the art of the deal – so why not get a helping hand with your finances?

We can help find the right loan for you and provide you with helpful guidance that could increase your chances of mortgage application success.

And while we’re at it, we can assist you in applying for any money-saving government incentives you may be eligible for.

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This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.