First home buyer choice. How does it work?

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Stamp duty is one of the more universally disliked taxes and has been the subject of intense debate for decades. Those against it often suggest a property tax as a more equitable alternative. NSW first home buyers can now make this choice for themselves. The NSW Government has just passed legislation which gives first home buyers the option of either paying stamp duty upfront or an annual property tax—it’s called First Home Buyer Choice. Read on to learn more.


How does the First Home Buyer Choice work?

For the coming few weeks (until January 15th), NSW first home buyers must still pay normal stamp duty upfront. However, if they opt in to the First Home Buyer Choice, they’ll receive a refund of the stamp duty paid on homes with a value of up to $1.5 million (and vacant land up to $800,000). From January 16th onwards, first home buyers who opt in won’t have to pay stamp duty at all. They’ll just need to pay an annual property tax. For example, on a $1 million home, the new annual property tax will take 28 years to add up to the upfront cost of stamp duty. Calculate your stamp duty here.


Will this choice make a difference for first home buyers?

The big question! In short, yes.

Stamp duty represents a large portion of the upfront costs first home buyers must save to purchase a property. For example, a NSW first home buyer intending to buy an $1 million home will generally need to save 20% or $200,000 for the deposit. In addition, the stamp duty on this purchase amounts to $40,398 which means buyers need to save an additional 20% on top of their equity. For a typical first home buyer, it’s likely to take a couple of years to save this amount of stamp duty.


What’s on the horizon?

So the NSW Government’s removal of this upfront barrier is likely to make a significant difference for first home buyers. It’s also a financial opportunity. The NSW Treasury’s comparison of the present value of paying stamp duty upfront versus the annual property tax shows a $20,209 saving for first home buyers who choose the property tax. As a result, the NSW Treasury estimates around two thirds of first home buyers are likely to take advantage of the First Home Buyer Choice opportunity.

As Landen’s Director Jim Dionysatos explains: ‘We view this first home buyer tax reform as positive for first home buyers and positive for the NSW property market. Given the choice between not being able to afford to take your first step on the property ladder and paying a small annual land tax, it’s a no brainer for first home buyers who are ready to enter the market. It’s great news.’


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