Land tax instead of stamp duty could save homeowners thousands

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Proposals by the NSW government to give home buyers the choice of paying land tax rather than an upfront stamp duty could save thousands in the initial years of homeownership, according to experts.

"We are proposing a once-in-a-generation reform to make homeownership more affordable and achievable, and the engagement and interest from across all segments of the community has been significant and heartening," says NSW Treasurer Dominic Perrottet said.

High property prices are one thing, but buyers also face overwhelming upfront costs in the form of stamp duty.

stamp duty v land tax choice to save thousands

"The biggest hurdle hopeful homeowners face when entering the property market is coughing up a hefty stamp duty fee," says Shannyn Laird, head of customer experience at property management agency Different.

"This is true particularly in NSW where stamp duty is extremely high compared to other states.

Under the proposals, buyers would have the choice between paying stamp duty upfront or a yearly land tax. Choosing the latter could flatten the cash flow demands on new owners.

"Replacing current stamp duty schemes with an annual land tax will be a positive step forward not only for Aussies, meaning more people can enter the market but also for the state to avoid pricing out investors, who may look to invest in other states instead."

This change could slash thousands off the cost of a home.

"The proposed land tax could also mean significant savings over the lifetime of owning a home. If you consider the average length of homeownership is 11 years, paying about $1000 annually with land tax versus $20,000 upward, upfront with stamp duty, you can see the considerable savings to be had.

Laird adds that house flippers, whose ownership length is even shorter, also stand to benefit.

But this reform is a slow burn. In the meantime, the government has proposed a $25,000 grant that would replace the stamp duty tax concessions. But Laird warns that it's far from a full fix.

"Even with the first home buyers grant, the criteria is tight, so not every first home buyer will be able to access this grant," says Laird.

"The rest are left forking out anywhere from $20,000 upwards on stamp duty."

With property prices continuing their march skyward, Laird says more is needed to blunt the price pain of owning a home.

"If the government is serious about creating a fairer property market, change needs to happen, and it needs to happen soon," she says.

"First home buyer grants and changes to stamp duty taxes is a positive step forward, but I'm eager to see what is actually passed on Tuesday, and when the changes will come into effect."

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David Thornton is a journalist at Money magazine and is one of the hosts of the Friends With Money podcast. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.
Comments
ALAN MACDONALD
June 30, 2021 5.03pm

Probably won't publish this comment but if you feel this is a good idea, perhaps Google Noel Whittaker Land Tax and get a more balanced version!

Jennifer Bailey
July 1, 2021 5.50am

An annual land tax is a tax designed to eventually capture us all.

A tax designed for Govt benefit, masquerading as a benefit for first home buyers.

It would increase annually with CPI, becoming yet another cost that homeowners have no control over, such as Council Rates.

It is not likely to be a tax that would help first home buyers, as historically whenever govt grants are on offer, the market heats up and everyone, including first home buyers end up paying more, effectively negating any benefit of the original grant.

Whereas Stamp Duty is a fixed, one off and calculable cost that can be budgeted for.

Cathy Guy
July 3, 2021 6.31pm

I think the land tax option will suit those who don't plan to hold on to their property for a long time. Personally, I prefer to pay the stamp duty as I tend to hold on to property for a long time and a land tax option could see me pay more than I would if paying upfront.

One aspect of this plan is the initial choice is set forever and future buyers are stuck with the original choice. I really don't like that and not sure why it's there.

Andrew R
July 5, 2021 8.33am

Stamp duty distorts behaviour, cripples job creation, lowers growth, and locks people into housing that might not be appropriate for their needs. To tax a minority of people each year for buying a property that better suits their needs is a ridiculous situation. Discouraging housing turnover also leads to mismatch and under utilisation of current housing stock.. The fear that these changes are about paying more tax are unfounded, if that’s they key driver it would be easier just to add couple percent to GST. These changes are well overdue to help with the major cities mobility

Andrew B
July 17, 2021 12.55pm

How about no stamp duty and no land tax for first home buyers! The government has got more than it fair share out of the property boom.