THE FIRST HOME OWNERS CHOICE SCHEME 2023 - Pay one-off Stamp Duty or an Annual Land Tax
A new scheme has been introduced by the NSW Government that is designed to assist first home buyers in purchasing their first home or property in New South Wales.
This new scheme provides a choice for those buyers who may not previously have been able to access a first home buyers stamp duty concession or exemption in New South Wales. The scheme is specifically for first home buyers. This means that any person who has already purchased a property does not have the option to access this scheme.
The new scheme allows for a first home buyer to "opt-in" when purchasing their first property (for properties up to $1.5 million) with the ability to make a choice between paying an annual property tax instead of the traditional up-font transfer duty (previously known as stamp duty).
This scheme applies to contracts dated after 16 January 2023, which gives those buyers the opportunity to "opt-in" to the scheme as a first home buyer. Other eligibility criteria also apply.
The property being purchased must be occupied by at least one of the eligible purchasers as their principal place of residence for a continuous period of at least 6 months, with that occupation starting within 12 months after the settlement date. A higher land tax rate applies for first home buyers who do not occupy the property.
For a first home buyer, there is no current stamp duty concession for a property purchased over $800,000. For example, a property purchased for $850,000 attracts a transfer duty of $33,340, so if purchasing the $850,000 property they would be liable to pay the full stamp duty amount of $33,340 before settlement.
The alternative for the first home buyer is to access the First Home Owners Choice program, which is a property tax assessed on the land value only. This is generally not going to be the same figure that the property is purchased for (as it does not include the value of the improvements on the land).
This land tax will be assessed on a yearly basis. If for example a property bought for $850,000 had a land value (as assessed for that year) of $429,000, the tax for the first year under the First Home Buyers Choice option, would be $1,687. This is calculated at $400 plus 0.3% of the land value of $429,000 for owner occupiers. If the first home buyer does not occupy the property the rate is $1,500 plus 1.1% of the land value.
Over 30 years (without yearly indexation) that amount would equate to $36,985. Thirty years has been used in this example as a guide by reference to paying out a mortgage on the property.
However if the property was owned for only 10 years by the first home buyer, their amount of tax would be $16,870.
In some circumstances, the purchaser may end up paying more through the annual land tax option than they would had they paid stamp duty up front. And in other circumstances, where the purchaser is only looking to hold their first property for a smaller number of years, the purchaser will pay less than they would have had they paid transfer duty. Each first home buyer needs to assess their choice to participate in this scheme based on their own personal details. It is advisable to seek professional advice.