Under the NSW Government’s planned stamp duty reforms, home buyers will be able to choose to pay stamp duty upfront or instead pay a new, smaller annual property tax. Community comment is being sought until 15 March.
In announcing the proposed changes in November last year, the NSW Government said it had the potential to make downsizing easier and therefore free-up under-utilised housing stock for families.
Stamp duty is regarded as one of the biggest barriers to downsizing, with a survey conducted by Downsizing.com.au and LJ Hooker finding that 27 per cent of people nominated stamp duty as the one incentive which would help them downsize.
Downsizing.com.au CEO Amanda Graham said the reform was expected to make more homeowners consider selling up and moving to something more suitable for their stage of life.
“We’ve observed that many downsizers in recent years are becoming more attracted to apartment living in a central location, or modern property developments in lifestyle locations.
“Not losing a large chunk of your hard earned cash in upfront stamp duty is a big plus for downsizers, and this change will stimulate a lot of new interest in the property market.
“It will definitely free up a lot more existing housing stock for younger families and first home buyers,” Ms Graham said.
For an owner-occupied home the annual tax option would be $500 plus 0.3 percent of the unimproved land value, paid each year.
In an example of how the new tax compares, a recently retired empty nester looking for a new home could pay a once-off stamp duty cost of around $27,000 for a $700,000 home.
But under the proposed annual property tax, and assuming the unimproved land value of the same property is $400,000, the cost would be $1,700 per year - or around $34,000 over 20 years.
There are a number of important considerations to weigh up, including:
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how long you expect to live in your new home,
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whether it will affect your age pension eligibility, and
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if stamp duty even applies to your prospective property purchase (stamp duty doesn’t currently apply to some types of retirement properties).
As always, it’s important to seek legal and financial advice about your own personal circumstances.
Annual tax option may be better if living in home for less than 20 years
University of Melbourne economics professor John Freebairn, says the impact of the proposed changes on downsizers will depend on how long they plan to live in their new home.
“If they’re expecting to live in it for less than 20 years - then they’ll be better off.”
“But if they’re expecting to be there for more than 20 years, then they might be worse off,” he said, “as the replacement property tax would need to be about a 20th of the stamp duty for the government revenue to break even”.
Scheme ‘could be a problem as it matures’
The Combined Pensioners and Superannuants Association (CPSA) has a range of concerns about the reform, including that it could reduce the pool of affordable tax-free homes and lead to retirees losing pension payments.
“We are concerned not so much for people who are pensioners currently because it’s voluntary, so they can avoid it,” the CPSA’s Paul Versteege says.
“My concern is once this property tax scheme matures - and a lot of properties have been opted in - pensioners will have much less choice and can’t avoid a new property tax.”
The government has committed that no landowner will be forced to sell their home to pay taxes, and would be able to defer liabilities to when they are able to pay or when they sell their home.
But Mr Versteege has a concern about the government’s long-term approach to managing cases of financial hardship and believes once the scheme reaches maturity, the government cost of supporting those who find difficulty paying will be substantial.
“We believe that the government will actually not be able to afford that and that those promises may not be kept,” he added.
Mr Versteege also pointed out that, by avoiding paying stamp duty upfront, pensioners needed to be aware they would potentially retain greater cash equity from their home sale, which would count towards the pension assets test.
This in turn, could mean their pension amount could be reduced.
Find out more:
- What do you think of the stamp duty reform - fill out our survey
- Give feedback directly to the NSW Government
More stories:
- How to save up to $150,000 when downsizing into a new home in great lifestyle locations across Australia
- Six of the biggest retirement planning mistakes
- How you can downsize and avoid paying any stamp duty
- The downsizer contribution superannuation scheme: your questions answered
- How to use home equity to fund your retirement
