Will the ‘First Home Buyer Choice Scheme’ benefit me?
There are so many emotions connected to a first home purchase: stress, anticipation, excitement to name a few. Not only might you be nervous about the process of buying a home, but you also have to deal with potential rejection in your application for a mortgage.
And then you learn about ‘stamp duty’ now called ‘transfer/purchase duty’!
Hopefully this article will help you to get a better understanding of the potential benefits available to a first home buyer through the ‘First Home Buyer Choice Scheme’.
Eligibility for the First Home Buyer Choice Scheme
You may be eligible for the First Home Buyer Choice Scheme if you meet the following criteria:
- Your property purchase does not exceed $1.5 million
- You are a permanent resident or an Australian citizen
- You move into the property for the first year of owning the property and live in the property for at least six months.
- You are purchasing your first property.
The scheme provides an option for assistance to first-time home buyers, where they can opt to pay land tax (quarterly or annually) as an alternative to stamp duty.
What is stamp/transfer duty?
Stamp/transfer duty is a lump sum tax payable to the Revenue NSW and is calculated on the purchase price of the property you are buying. For example, for a property purchase price of $750,000 you would need to pay the amount of $28,840.00 in stamp duty, however for first home buyers under the First Home Buyers Assistance scheme, duty is reduced to $20,727.
How is this new ‘annual land tax’ calculated?
Under the First Home Buyer Choice Scheme, the annual rate payable will be 0.3% of the property’s unimproved value of the land plus an additional $400. It is important to note that the purchaser price is not the unimproved value of the land, but rather this amount is provided by the Valuer General.
It is important to note that this tax will be increased annually to align with increasing average incomes – however this increase is capped at 4%.
As mentioned earlier you can also elect to pay the tax quarterly or as an annual instalment.
Is paying Transfer Duty better or is it better to use the First Home Buyer Choice Scheme?
As an example, let’s have a look at the facts below;
Matthew is buying his first home worth $750,000. Ordinarily he would be required to pay $20,727 upfront in stamp duty as an eligible first home buyer. Matthew wants to sell his first home within the next 5 years to upgrade to a larger house. Matthew applies for the annual land tax option as he would pay less tax considering he intends to sell within the next few years. Mathew pays $1,451 as an annual property tax in the first year. Matthew ends up selling his property after 2 years. Matthew has avoided paying the original stamp duty fee of $20,727 and has saved approximate $19,276 in opting to pay the annual land tax.
However, if Mathew was to keep and live in the property for 20 years
Then the total amount of property tax Mathew will pay is estimated at $23,532 in present value terms, and would mean that Mathew pays an additional $2,805 buy choosing to use the First Home Buyer Choice Scheme than paying transfer duty.
If you would like to calculate the difference between paying stamp duty or the annual property tax on your own home purchase, the Government has established a First Home Buyer Choice Calculator where you can see how much you could save under which scheme
Exceptions
In the case where the buyer is purchasing their first property which is under $650,000, an exemption exists that excludes the purchaser from the obligation to pay any transfer duty at all, which means that the First Home Buyer Choice Scheme would not be suitable or used for any property purchased under $650,000.
This appears as a win-win at first glance; however, we note that the Australia Bureau of Statistics states the average price of residential dwellings as of June 2022 was $921,500!
Looking into your potential eligibility for the First Home Buyer Choice Scheme is an option to be investigated as a ‘first-step’ in the first home buying process.
What if I want to turn my property into an investment property later on?
If you decide to convert your property purchase from your main residence to an investment property at a later date, the rates will simply adjust. The land tax payable if the property is an investment will be 1.1% of the property’s unimproved value of the land plus an additional $1,500 annually (increased from 0.3% and $400).
When can I expect this annual land tax scheme to commence?
The scheme comes into effect officially on the 16 January 2023. However, if you have purchased a property between 12 November 2022 and 15 January 2023 and you are eligible under the First Home Buyer Choice Scheme, you can apply for a refund of the stamp duty and opt to pay the annual land tax under this new proposal.
In addition to the above, if you are an eligible first home buyer who has purchased a property under an off-the-plan Contract on or after the 11 November 2021 with settlement due on or after 11 November 2022 you will also be able to apply for the annual property tax.
Is the land then locked into this ‘annual property tax’ forever?
If you opt to pay the annual land tax and then sell your first home, the new owners will not be locked into this property tax and will have the freedom to choose whether to pay the annual land tax or stamp duty.
When should I apply for the annual property tax?
An application for the annual property tax would need to be made prior to settlement and can be done by your lawyer – it is important to remember that after settlement has occurred you will be unable to change your mind about your choice to pay either stamp duty or the annual property tax.
Where to from here?
If you are a first-home-buyer and are looking for assistance in finding the best way forward towards your purchase, the importance of specialist advice in determining your eligibility as a candidate for the First Home Buyer Choice scheme is clear.
For a free, no obligation review of your current circumstances, simply pick up the phone or email us on;
Call us now: 1800 893 836
Email us now: info@bizlawyers.com.au
Website: https://bizlawyers.com.au/services/wills-a.html
