Several schemes are in place to help first home buyers in NSW break into the property market. To further reduce the financial pressure that can come with purchasing your first property, the NSW Government introduced the First Home Buyer Choice (FHBC) scheme. The FHBC scheme commenced on 16 January 2023. The goal of the scheme is to lower the upfront costs that come with purchasing your first property. It is estimated that the scheme may reduce the time first home buyers in NSW need to save for a deposit by up to 2 years.
What is FHBC?
The FHBC scheme gives eligible first home buyers in NSW a choice between paying transfer duty (formally known as stamp duty) or annual property tax. These measures are current as of January 2023 and may change.
Who is eligible for FHBC?
Only those who are eligible first home buyers in NSW can access the FHBC scheme. To be an eligible first home buyer in NSW:
- You must be purchasing the property as an individual, not a company or trust;
- You must be over 18 years of age;
- You, or at least one other person you are buying the property with, must be an Australian citizen or permanent resident;
- You or your spouse must not have previously owned or co-owned residential property in Australia or received any other grant or concessions in relation to purchasing property;
- The purchase price of the property must not exceed the price cap. The property you are purchasing must be less than or equal to $1.5 million;
- You must move into the property within 12 months of purchasing the property and live in it for a continuous period of at least 6 months; and
- You must sign the contract for the purchase of the property on or after 11 November 2022.
If you meet the above criteria, you are eligible to opt into the scheme. Eligible buyers who are purchasing vacant land for less than $800,000 with the intention of building a home on the land can also opt into the scheme. By doing so, they will pay annual property tax rather than transfer duty.
For first home buyers in NSW who are eligible for one of the NSW Governments other first home buyer schemes, it is important to consider that there may be no benefit to opting into the FHBC scheme. If you qualify for another scheme, such as the First Home Buyer Assistance scheme, transfer duty payable on your purchase may be calculated at a concessional rate or you may qualify for a full exemption and pay no transfer duty.
What is the difference between transfer duty and annual property tax?
Before opting into the scheme, it is important to understand the difference between transfer duty and annual property tax.
Typically, when you purchase property in NSW you must make an upfront payment of transfer duty. Transfer duty is essentially a tax charged by the NSW government to transfer property ownership from one person to another. In most cases, transfer duty is payable within three months of signing a contract. Transfer duty is calculated based on the property’s sale price or its current market value, whichever is greater. For more information on how transfer duty is calculated, visit the Revenue NSW website here.
Annual property tax consists of annual payments based on the land value of the property you purchase. As the value of land is likely to increase over time, the property tax payable may also increase. The property tax rates set by the NSW Government for the 2023-2024 period are:
- $400 plus 0.3% of land value for properties whose owners live in them.
- $1500 plus 1.1% of land value for investment properties.
The amount of annual property tax payable is indexed to increase annually. The increase is capped at 4% each year.
If you meet the criteria of an eligible first home buyer in NSW and signed a contract to purchase a property between 11 November 2022 and 15 January 2022 you can claim a refund of the transfer duty you paid on your purchase. To do so, you must opt into the FHBC scheme before 30 June 2023. To opt into the scheme please and obtain a refund please visit the Revenue NSW online portal here.
Is paying transfer duty or annual property tax better for me?
There are many things an eligible first home buyer in NSW will need to consider prior to opting into the FHBC scheme. It is important to obtain financial and legal advice to better understand your position as a purchaser. The Service NSW website offers an online calculator tool so that prospective first home buyers in NSW can consider their options. To use the online calculator, please visit the Service NSW website here.
Am I still eligible for other NSW Government assistance schemes?
If the FHBC scheme is not right for you, you may be eligible to apply for a different initiative that can reduce financial pressure as a first home buyer, such as the First Home Buyer Assistance Scheme. Under this scheme, eligible buyers may be entitled to an exemption or reduction in transfer duty on their purchase. If you are eligible, you will only be able to go ahead with one of the schemes. Each option comes with its own advantages and disadvantages. It is important to weigh these up before making a decision to opt in to a scheme or apply for a scheme. These measures are current as of January 2023 and may change. More up to date information can be found on the Revenue NSW website.
Although schemes have been put in place by the NSW Government to reduce the initial costs for those purchasing their first homes in NSW, it is important to remember that there are also other costs associated with purchasing your first property. Additional costs can include things such as legal fees, building and pest inspections fees, and mortgage registration fees. It’s crucial to factor these costs into your budget to ensure you are financially prepared to purchase your first property.
For more information on the First Home Buyer Choice scheme and other schemes, please visit the Revenue NSW website here.
The team at Eleven Legal can assist you with purchasing your first property. If you need help opting into the First Home Buyer Choice scheme; contact us today!
