The NSW Government has announced a ground breaking new policy for first home buyers as part of their latest budget.

From 16 January 2023, eligible first home buyers purchasing a property will be offered the choice to pay stamp duty up front as a lump sum, or they can elect the new option to pay an annual property tax.

The Policy will be accessible to first home owners in NSW that are buying a home valued up to $1.5 million. If you are purchasing vacant land up to the value of $800,000 with the intention to build, and you are a first home buyer, you will also be able to access this scheme.

The NSW Government’s aim for the policy is to make it easier for people to get into the property market quickly by reducing the up-front costs of home ownership. It is estimated that removing the stamp duty up front cost could reduce the time needed for many first-time home buyers to save by up to two years.

To be eligible to access this choice you must meet the following eligibility criteria:

• Be purchasing the property as an individual (not a company or trust).
• Be over the age of 18.
• Be a first home buyer and have never previously received a First Home Buyer Grant or duty concession. This also applies to your spouse if you are purchasing property together.
• The purchase price of the property is less than $1.5 million.
• The purchase contract is signed after the scheme starting date of 16 January 2023.

It is also a requirement of the scheme that you move into the property within 12 months of purchasing it, and you must live there continuously for at least 6 months.

The legislation is due to pass in the NSW Parliament in the second half of 2022 with the Scheme becoming effective on 16 January 2023.

If you are an eligible first home buyer purchasing a property in the time between the passage of legislation and 15 January 2023, you will still have to pay the stamp duty up front but will also be able to opt into the property tax. That means that after 16 January 2023 you will be able to apply for a refund of your stamp duty and pay the annual property tax instead.

The annual property tax payment will be similar to local government rates. The property tax can be paid in quarterly or annual instalments. Instead of paying a one-off lump sum you will pay the annual amount each year for as long as you own the property. This means that over time, you may end up paying more in property tax than you otherwise would have on stamp duty.

When you sell the property there will be no further property tax to pay. If you plan on holding the property for the short term, the property tax choice may work in your favour.

For owner occupiers the annual property tax is calculated as $400 plus 0.3 per cent of the land value. For example, if your land valuation was $1million, the property tax you would need to pay is $3,400.

If you decide to change the usage of the property, from primary residence to investment property, the rate is increased to $1,500 plus 1.1 per cent of land value per year.  You need to notify Revenue NSW of the change in usage and the higher rate will then apply.

The Valuer General determines the value of land every three years, so you should factor into your calculations changes to land value over time. The tax rate will be indexed each year in line with average income growth.

Unlike ordinary land tax, which is calculated per calendar year, the property tax assessment will be issued for each financial year.  If you purchase the property part way through the year, you will receive a pro rata adjustment for the number of days you owned the property that year.

If you’re not sure which option to choose you should seek advice before deciding. Once your choice has been registered at settlement, it can’t be changed. If you choose to pay the property tax, you will be required to continue to pay the property tax for as long as you continue to own the property.

First home buyers will still be able to access existing stamp duty concessions for property purchased up to the value of $800,000. Similarly, some first home buyers will also be eligible for the NSW Shared Equity Scheme, making home ownership even more attainable.

Our property law specialists will be happy to discuss the options with you, so you can make an informed decision before buying your first property.  

Note: This information is subject to change, pending the Legislation being passed by the NSW Parliament.