Australia markets closed
  • ALL ORDS

    7,418.60
    -29.00 (-0.39%)
     
  • AUD/USD

    0.6715
    -0.0038 (-0.56%)
     
  • ASX 200

    7,229.10
    -30.40 (-0.42%)
     
  • OIL

    73.75
    -2.53 (-3.32%)
     
  • GOLD

    1,759.20
    +5.20 (+0.30%)
     
  • BTC-AUD

    24,155.83
    -652.92 (-2.63%)
     
  • CMC Crypto 200

    379.75
    -2.91 (-0.76%)
     

Stamp duty or land tax: What first home buyers can expect

Australian money notes. Australian houses on street. Stamp duty and land tax concept.
From tomorrow, NSW home buyers can choose between paying stamp duty or an ongoing land tax. (Source: Getty)

From Saturday, first home buyers in NSW will be able to choose between paying a larger upfront stamp duty or a smaller ongoing annual land tax.

According to the NSW government, the $728.6 million scheme, called First Home Buyer Choice, means thousands of first home buyers will be able to get onto the property market sooner.

So, how will the scheme work? And which option works out better?

How will it work?

Until now, NSW home buyers have been required to pay an upfront stamp duty fee. The new scheme will give first home buyers a choice to pay either that upfront fee or an annual land tax of $400 plus 0.3 per cent of the property’s land value. It will be open to properties up to $1.5 million or vacant land up to $800,000.

The property’s land value will be determined by the NSW Valuer General, and you can check land values with the government. It is the value of your land only and doesn’t include the value of your home or other improvements.

The scheme won’t be fully operational until January 16, 2023. Until then, home buyers will have to pay stamp duty, but can then later apply for a refund if they choose to opt into the land tax fee.

Is stamp duty or land tax better?

An owner-occupier purchasing a $1 million house would need to pay $40,090 in upfront stamp duty. If they opted for the land tax instead, NSW Treasury data found they would pay $2,200 property tax for the first year and $19,881 over 10 years (in present value terms).

That’s a saving of $20,209 if they hold onto their home for 10 years. The average owner-occupier sells their home within 22.6 years, and half sell within 10.5 years.

Treasury also crunched the numbers on how long it would take you to break even, based on the current market value for a house:

  • $800,000 - stamp duty $31,090, 21 years to break even

  • $1,000,000 - stamp duty $40,090, 23 years to break even

  • $1,250,000 - stamp duty $52,950, 26 years to break even

  • $1,500,000 - stamp duty $66,700, 29 years to break even

The government has an online calculator tool that you can use to work out how much each option will cost you.

The land tax will increase if your land grows in value over time, plus the government has said it will be annually indexed.

What are the downsides?

Not everyone is happy about the scheme and the opposition has argued it could become a “forever tax” on home owners.

The tax is also based on the value of the land, which is likely to grow, while wages stay stagnant, Labor leader Chris Minns said.

“Our concern is that future governments will jack up the land tax rate,” Minns said on Thursday.

“If you’re already on that merry-go-round, you have to trust this Premier and all future premiers not to up the land tax rate on your family home.”

Follow Yahoo Finance on Facebook, LinkedIn, Instagram and Twitter, and subscribe to the free Fully Briefed daily newsletter.