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Getting Started /23.02.23

First Home Buyers: Stamp duty vs annual tax - which works out cheaper?

What works out cheaper - Stamp duty or annual tax?

As of 16 January 2023, first home buyers in New South Wales have the option to opt out of paying upfront stamp duty and instead pay an annual tax. The First Home Buyer Choice scheme was introduced by the NSW Government in a bid to help reduce the entry cost for buyers looking to get into the property market. Rather than paying the lump sum for stamp duty, first home buyers can instead choose to pay an annual property tax plus a percentage of the land’s value.

Stamp duty vs annual tax

Usually, purchasing property in New South Wales involves paying stamp duty, which is calculated based on the purchase price. The annual tax scheme instead charges $400 per year (for the 22/23 and 23/24 tax years) plus 0.3% of the land value (not the purchase price).

When calculating the difference between the two, it is also important to keep in mind eligible first home buyers also receive concessions on stamp duty. There is no stamp duty for them on a new or established home valued under $650,000. Stamp duty is then charged at a concessional rate for homes valued between $650,000 and $800,000. 

If we look at the median house price in Sydney of $1,257,625 whereby the land value is 60% ($754,575), the upfront stamp duty would be $53,373. If you instead opted for the annual tax, you would pay $2,664 in the first year.

It depends on how long you own the house as to which payment would be best for you. If you lived in the property for 15 years, projections show you would likely still be in front if you opted for the scheme. However year 17 onward would likely switch over to being more expensive than paying stamp duty upfront.

There are a lot of variables in this calculation, so reach out and our finance team can help you crunch the numbers.

Am I eligible for the First Home Buyer choice?

The First Home Buyer Choice is only available on homes worth up to $1.5 million or vacant land worth up to $800,000. To be eligible, you must be over 18 years old, be an Australian citizen or permanent resident and be purchasing your first home (it is not open to people who previously owned property in Australia or for companies or trusts). You must then move into the property within 12 months and live there for a minimum of six consecutive months.

Keep in mind that eligibility criteria is determined by the NSW Government and is subject to change.

What if I turn it into an investment property?

To be eligible for the scheme, you will need to live in the property yourself for at least six months. If you then choose to turn the property into an investment, you will be required to pay $1,500 plus 1.1% of the land value per year (and this amount is likely to increase in future tax years).

Speak to our Finance Specialists

Are you considering buying your first property? Our finance team can help you crunch the numbers to determine whether you could be better off opting for the First Home Buyer Choice or paying stamp duty upfront. We can also help you find the right construction home loan and do the legwork for you to get your finances sorted. Reach out to find out more.