NSW Budget 2020: Daily Telegraph answers your stamp duty questions

Are you confused about how the state government’s new rules for stamp duty work? The Daily Telegraph has answered all your questions.

First-home buyers, growing families and residential investors will all be affected by a plan to shake up NSW stamp duty and property tax. Here are the winners and losers of the plan as The Daily Telegraph answers your questions.

Will a switch to annual property tax from up-front one-off stamp duty increase rents?

The NSW Tenants Union expects the reforms will ease pressure on rents. “We’ve long been supportive of a shift to a broader based land tax,” said its senior policy officer Leo Patterson Ross. The union believes such a change will encourage owners such as empty-nesters to move, freeing up more housing stock. It might also see such sites redeveloped, creating more properties for renters. Mr Patterson Ross said the current system encourages a “churning effect” where owners sell after six or seven years when they have used up the negative gearing benefits. A property tax system would promote longer-term ownership – say, as long as 20 years – which means increased stability for tenants.

How long will you have to pay the tax for?

The tax has to be paid for as long as the property is owned. So it’s not an instalment plan for paying off the equivalent of the stamp duty. For owner-occupiers it appears the property tax option is cheaper if the home is held for less than 10 years. If it is held for 20 years, stamp duty is the cheaper option. A case study published by the government shows that over this length of time, property tax can be twice as costly as stamp duty. The average length of ownership in NSW is nearly 12 years for a house and nearly 10 for an apartment.

Frst home buyer Andrew Walker, whom the government says will benefit from changed rules around stamp duty. Picture: Richard Dobson

Who takes on the tax after the home is sold?

If you were to buy a home and choose the property tax option, the next owner would not have a choice to pay stamp duty when they bought from you. That’s because under the NSW Government’s preferred model, there is no going back. The obligation to pay property tax would transfer to the new owner. However, if you bought a home and chose to pay stamp duty, the next owner could also choose to pay stamp duty. Or they could switch to property tax.

What does it mean for …

Residential investors

Residential investors would have the choice to pay stamp duty and land tax or an annual property tax when they purchase an investment property. Property tax would combine stamp duty and land tax into one. Over 10 years the property tax option on an $800,000 buy is $18,250 lower.

First-home buyers

A first-home buyer would receive a grant of as much as $25,000 instead of stamp duty concessions then make a choice between one-off stamp duty or annual property tax. A first-home buyer of an $800,000 property who chose the property tax option would save $56,000 at the time of purchase. If the unimproved land was worth $500,000 they would be up for $2000 a year in property tax, which would increase as the land value went up.

Empty nesters

An empty nester looking for their “forever home” could face a bigger bill if they choose the property tax option. The government consultation paper says such a person may be up for $27,500 more under the property tax option.

NSW Treasurer Dominic Perrottet delivering the 2020-21 State Budget on Tuesday. Picture: AAP Image/Pool/Dean Lewins

Growing families

A growing family with changing needs could buy every three years and by choosing the property tax option they would save as much as $70,000 over a decade compared to paying stamp duty. Whether they would choose to buy every three years under the existing system is an open question.

Existing homeowners

An existing homeowner who doesn’t want to sell is unaffected by these reforms. They will not pay property tax. They have already paid stamp duty and that is the end of it until they choose to sell.

Doesn’t land tax exist already? Who pays it?

Land tax is payable annually on most vacant land, investment properties, holiday homes and commercial real estate as well as car spaces. It does not apply to your home or farms. There are two rates. The lower “general threshold” is $100 plus 1.6 per cent of land value above the threshold, which is $734,000 this year. That applies up to the “premium threshold” of $4.488 million. The premium threshold is $60,164 plus two per cent of land value above the threshold. The land tax payable is based on the combined value of your holdings, not their individual worth. Land tax raises about $4.5 billion a year for the NSW government.