NSW First Home Buyer Choice – duty or tax?

February 13, 2023

With the introduction of the First Home Buyer Choice Scheme on 16 January 2023, first home buyers in NSW are given the choice as to how they pay their transfer duty for residential properties. A first home buyer can either:

• pay transfer duty up front at settlement; or
• elect to pay an annual property tax for the time they own the property.

Eligibility:

The choice of the new annual property tax is available to eligible first home buyer’s purchasing:

• a new or existing home (including off the plan) in NSW with a value not exceeding $1,500,000; or
• vacant land in NSW, on which you intend to build your first home, with a value not exceeding $800,000.

To be eligible, a first home buyer:

• must be an individual (not a company or trust);
• must be over 18 years old;
• must be an Australian citizen or permanent resident (or at least one other person who is jointly buying the home must be an Australian citizen or permanent resident).

And finally, a first home buyer or their spouse must not have previously:

• owned or co-owned residential property in Australia; or
• received a First Home Buyer Grant or duty concessions.

There are resident requirements that must be complied with. The home 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 settlement.

Transfer duty exemptions can still apply for first home buyer properties up to $650,000 (no transfer duty), and transfer duty concessions will still apply for properties up to $800,000 (reduced duty rate).

How is property tax calculated? 

The annual property tax payments will be based on the land value of the purchased property, notices are issued each financial year.

The property taxes for 2022-2023 and 2023 -2024 will be:

• for residential properties occupied by the owner $400.00 + 0.3 % of the land value; or
• for properties no longer occupied by the owner: $1,500.00 plus 1.1 % of the land value.

As an example,  if a first home buyer bought a $1 million house and sold it 10 years later, the annual property payments over the 10 years would total $19,881 in present value terms compared with $40,090 in upfront transfer duty. That’s a saving of $20,209.

These tax rates may be subject to change after these dates. Land value is determined by the Valuer General.   Property tax can be paid in quarterly or annual instalments and will be assessed for a financial year.

There may be instances, depending on your situation, where land tax may also be applicable for property that has been opted into property tax.

Once you have made your choice to opt into property tax; you cannot change your mind once you are the owner of this land.

You can compare the estimated property tax and transfer duty using the First Home Buyer Choice Calculator on the Service NSW website.

Selling the property?

If a first home buyer sells the property, they will no longer need to pay property tax.  However, any outstanding property tax must be paid by the seller prior to transfer or as part of the settlement process.

The property is not locked into property tax for subsequent buyers. Subsequent buyers will either pay transfer duty, or if they are an eligible first home buyer, choose to either pay transfer duty or the annual property tax.

However, if the property is transferred from a first home buyer who elected to pay the property tax to:

• a related person such as family member;
• an existing owner of the property; or
• the person’s spouse on death or as part of a property settlement on a relationship breakdown.

then the transferee may be locked in to paying the property tax.

If you are buying your first home in NSW, talk to our residential conveyancing team about making your choice.