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Plans to introduce the option of an annual land tax instead of stamp duty in New South Wales have been met with mixed opinions.
Premier Dominic Perrottet’s landmark tax reform, shifting the state from stamp duty to land tax, was more tentative than expected when announced in June, enabling first-home buyers to opt-in to the scheme and pay an annual levy of $400 plus 0.3 per cent of the land value.
More than 2.6 million parcels of land are valued as at July 1 each year with land value being the value of your land only and does not include the value of your home or other structures and improvements.
Figures can be found from the NSW Government’s Valuer General.
Corporate advisory group KPMG said it welcomed the government taking the first steps to shifting away from a transfer duty on property sales to a broadbased land tax, and said reform measures were best made when the state’s finances were in a sound position.
First-home buyers will have the option of paying an annual land tax rather than stamp duty if they buy a property worth up to $1.5 million. That translates to $1900 a year for those buying a $1 million home assuming the land is worth $500,000, rather than an upfront stamp duty cost of $40,305.
The policy is short of a proposal flagged by the Premier last year that would have offered buyers of 80 per cent of homes across NSW the option of paying an annual land tax.
Some experts warn stamp duty is a bad tax because it discourages homeowners from moving house, as doing so would mean having to pay stamp duty a second time.
In the Premier’s signature property tax proposal, the so-called “First Home Buyer Choice” policy, homes purchased under the property tax option would not be locked into the scheme. Subsequent buyers could choose to pay stamp duty if they wanted.
Looking at the calculations, the choice for many would appear to be a no-brainer.
Paying property tax would make sense for first-home buyers who are lucky enough to have a well-paying job that can service a mortgage but haven’t saved enough to pay a big lump sum in stamp duty in addition to a sizeable deposit. Particularly if they plan to upsize down the track.
Avoiding stamp duty would also let buyers put more money into a deposit, which would in turn decrease the premium they pay to the bank in Lenders Mortgage Insurance. However, with interest rates predicted to continue rising until next year, first-home buyers should ensure they can service any such increase. But if a first-home buyer who has saved hard gets lucky and finds their “forever home”, they may choose to pay stamp duty.
Real Estate Institute of NSW chief executive Tim McKibbin also said the proposal was mixed news.
“For a first-home buyer looking for an entry-level property, there’s an opportunity to buy a home without paying the stamp duty,” he said.
“At face value, this is positive news, as it means they’ll have more money to spend on the property itself, making them more market competitive. However, if the first-home buyer is buying their ‘forever home’, then this option becomes less attractive.
“First-home buyers should also keep in mind that no stamp duty is payable for a property costing less than $650,000, and reduced stamp duty is payable between $650,000 and $800,000.”
NSW Labor will oppose the legislation, which has yet to pass into law.
Stamp duty was first introduced in NSW in 1865, at the time of the American Civil War.
The upfront, lump-sum transfer duty has been described as a punitive tax adding tens of thousands of dollars to the purchase price of a property, and then penalises anyone who attempts to downsize or move into more suitable housing down the track. It is argued land tax is a smaller, simpler tax similar to council rates encouraging household mobility, allowing people to move as often as they like without paying a penalty for it.