Stamp duty vs land tax – what’s the difference?

The forthcoming NSW state election will be fought over a variety of issues, but perhaps the most important for prospective first homebuyers will be that of stamp duty vs land tax.

Back in November 2022, the Perrottet government passed legislation allowing eligible first homebuyers to choose between paying upfront stamp duty or a new annual land tax known as the First Home Buyer Choice Scheme.

According to the scheme website, the new land tax “can lower the upfront costs of your purchase and cut up to 2 years off the time needed to save for a deposit”.

Not everyone’s a fan, though. Labor leader Chris Minns has branded it a “forever tax”, pledging to repeal the legislation if elected and proposing instead to make first-time buyers of properties worth up to $800,000 exempt from stamp duty (the current limit is $650,000) and introducing a reduced rate for properties worth between $800,000 and $1m.

By doing so, Labor claims that 95% of first homebuyers in NSW either won’t have to pay stamp duty at all or will qualify for the new concessionary rate.

Let’s take a closer look at the key differences between stamp duty and land tax, and what they might mean for first homebuyers in NSW.

Stamp duty

Stamp duty is the traditional tax payable when you buy a property, and is usually one of the largest upfront costs involved. The exact amount depends on a number of factors, but typically comes in at 3 to 4% of the purchase price.

It’s technically called ‘transfer duty’ these days but just about everyone still refers to it by its original name, which derives from the time when a physical stamp on a document was required as proof of payment.

Most states offer exemptions or concessions for first homebuyers depending on the price of the property in question. You can get an estimate of the approximate cost with our stamp duty calculator.

For more accurate information, it’s best to check the relevant state website.

Stamp duty has long been criticised as unnecessarily burdensome on first-time buyers. Perrottet himself has previously described it as “the worst tax that any government can have” and “a massive impediment for people getting into the housing market”.

Land tax

The First Home Buyer Choice Scheme came into effect in NSW on 16 January 2023. It offers first-time buyers of homes worth up to $1.5m the option of paying traditional upfront stamp duty or an annual tax of $400 plus 0.3% of the property’s land value.

To give you an idea of what this might mean, a $1.5 million property in Penrith would cost approximately $67,000 in stamp duty while the corresponding land tax would come to approximately $4,900 per year.

Similarly, an $860,000 apartment in Campsie would require approximately $34,000 in stamp duty compared to approximately $2,980 per year in land tax.

In addition to calling it a “forever tax”, Labor leader Chris Minns has warned of what might happen in the future, saying, “If you’re already on that merry-go-round, you have to trust this premier and all future premiers not to up the land tax rate on your family home.”

Which is best for you?

Perhaps the most pertinent factor in determining which is best for you is how long you’re planning on owning your first home. If the answer’s not very long, a few years’ worth of land tax might seem more attractive than a much larger upfront sum.

On the other hand, if you’re intending to hold onto your property indefinitely, the ‘forever tax’ jibe might hit closer to home (no pun intended).

As with most things, there’s no one-size-fits-all answer. At the end of the day, it all comes down to your individual circumstances.

We’re here to help

Great Southern Bank is all about getting customers into their first home in whichever way suits them best. We know that saving for a deposit is one of the biggest barriers facing many prospective homebuyers, so understanding the upfront costs, including government fees like stamp duty, is important to knowing how much you need to save.

So too is understanding what other forms of government support might be available to help offset some of these costs or reduce the amount of your deposit. That's where talking to someone who understands the homebuyer journey can help.

If you'd like to talk to one of our friendly Home Loan Specialists, simply give us a call on 133 282. Alternatively, you can always pop into your local branch for a chat.