What is the new NSW land tax option for homebuyers?

Starting early next year, New South Wales first-time home buyers will have the option to pay an annual land tax instead of the one-off stamp duty.

This new land tax option will allow first-time buyers who are purchasing a property up to $1.5 million (or vacant land for up to $800,000) to opt out of stamp duty and instead pay an annual fee of $400 plus 0.3 per cent of the land’s value.

“For the first time, we will provide first home buyers with a choice, helping thousands of people to shave around two years off the time needed to save for a deposit,” said NSW Premier Dominic Perrottet.

“We want to lower the barriers to owning a home for first-home buyers seeking a place of their own.”

But how does it all work? We detail the potential costs below.

How does the NSW land tax work?

If you buy a $1 million house, the stamp duty will be around $40,000 (based on the purchase price, in this instance). You can work out an estimate for your own situation using a NSW Stamp Duty Calculator.

But if you opt for the land tax option, you’ll pay $400 + 0.3% of the land’s value annually, around $3,400 (assuming the value is the same). So it would take about 12 years for the land tax payments to equal the stamp duty option.

If you’re looking to buy an apartment instead of a house, you could pay less in land tax because the land value tends to be much lower for apartment blocks.

For example, an $800,000 apartment with a land value of $250,000 would require you to pay a stamp duty of about $31,000. 

Alternatively, you could pay $1,150 on land tax annually, which is likely to be cheaper for you over say, 25 years.

But if you’re able to pay stamp duty upfront and plan to be in the home a long time, it might make more sense to do so. Meanwhile, a short term buyer might be better off with the land tax option, especially if they planned to only be in the home for five or ten years. 

These are decisions that definitely require the advice of a tax or property expert however, so be sure to talk to someone in the know first. 

Remember, there are a couple of rules to note. The land tax payable is equal to:

• $400 plus 0.3 per cent of land value for properties whose owners live in them.
  
• $1,500 plus 1.1 per cent of land value for investment properties.

How do I calculate the NSW land tax?

Let’s recap - to calculate how much you’d pay in land tax you’ll need the following:

• The property’s purchase price.
  
• The address for the property or estimated land value.
  
• To provide property usage, i.e. owner occupied or investment.
  
• To share if it's a new or existing dwelling.

Once you’ve gathered all the information, you can go to the official NSW land tax calculator and plug in your information. Then you’ll receive the estimates of what you may pay if you choose to opt out of stamp duty. 

The new land tax option will kick in on 16 January 2023 for first time home buyers in NSW. 

If you’re looking to buy for the first time, check out Mozo’s first time home buyer guides. Alternatively, if you’re ready to buy, you can compare home loans below.