Stamp Duty: A Beginner’s Guide

‘Stamp Duty’ it’s almost a dirty word among property investors and political commentators at the moment, and has been the subject for much debate in state politics of late. For better or worse however, it’s a fact of life for those purchasing property; at least for the foreseeable future. For those who haven’t yet had the tackle the issue of stamp duty, we take a closer look at what stamp duty is, when it is applicable and what it means for your property purchase.

What is stamp duty?

Stamp duty, also known as ‘transfer of land or business duty’ is a state-based tax, which applies to the sale of land (including improvements and buildings), business assets, or the declaration of trusts over dutiable land. Put simply, if you are purchasing a business or a property in NSW, you are subject to stamp duty. Stamp duty is intended to cover the costs of transferring the title of the property and its ownership details.

There has been much debate recently about the revenue accumulated by states from the collection of stamp duty, and whether it should be abolished to allow more freedom of property movement in the market. Unfortunately, stamp duty simply represents too big of a cash cow for state governments. In fact, Gladys Berejiklian’s first state budget has benefited substantially from a record $7.29 billion in stamp duty revenue over the 2015/16 financial year. As well as funding infrastructure plans, the takings from stamp duty have been allocated to the Housing Acceleration Fund to pay for water, electricity and roads.

Stamp duty rates differ, depending on state. You can calculate your stamp duty here, or take a look at the below thresholds for stamp duty in NSW.
(photo credit: NSW State Office of Revenue)

When does stamp duty apply?

Stamp duty applies to the sale of all property within NSW, and in all other states at their designated thresholds. However, there are some exemptions for those new to the property market. Previously, first home buyers who purchased a new home up to the value of $550,000 were exempt from stamp duty. However, in an effort to make housing more affordable for first home buyers, the NSW government announced that stamp duty exemptions would now apply to established homes, as well as new homes. The threshold for exemptions for first home buyers has also been raised to $650,000. Furthermore, concessions will apply to homes between $650,000 and $800,000 in value.

Stamp duty on lenders mortgage insurance (LMI) has also been abolished, which could save buyers up to $2,900 on a $650,000 home. While first home buyers are certainly the winners in the new budget for 2017, investors will take a hit. Stamp duty concessions for off-the-plan apartments are being abolished, as is the previous 12-month deferral on payment of stamp duty. The stamp duty surcharge for foreign investors will rise from 4% to 8% in a bid to swing the property market in favour of first home buyers.

What does it mean for my purchase?

If you’re a first home buyer looking to purchase a home to live in, these recent changes will save you a lot of money. The stamp duty alone on a $650,000 home would equate to more than $24,000. For those looking at the Sydney market however, you’ll be aware that the average home can cost in excess of $1,000,000. The stamp duty payable on such a purchase is significant, to say the least.

If you’re not a first home buyer, stamp duty, on top of the other fees you’re likely to encounter when purchasing a property (such as land tax, and capital gains tax, for example), will have a significant effect on the returns you’ll make. Over $40,000 in stamp duty (for a $1 million home, for example), as well as other fees and charges, will put a dent in any gains you’ll receive from your investment and should be taken into consideration when building your investment portfolio. Unfortunately, it’s an unavoidable fee for those who aren’t first home buyers, and is simply part and parcel with property investment throughout Australia. Stamp duty rates and thresholds differ across states, so it’s important to calculate the rate applicable to you, if you’re considering purchasing property outside of NSW.

For more information about stamp duty, and other fees and charges which you may be subject to when purchasing a property (be it an investment, a family home, or as a first home buyer), get in touch with an experienced buyer’s agent. Your buyer’s agent will help you to navigate the complex world of property, and assist you in understanding your best options for minimising your liability in fees, taxes and other charges.

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