Stamp duty or land tax - What is better for home buyers?

The recent interest rate rises have been a topic of concern for many Australians, with 12 rises in 14 months having a significant impact on people’s borrowing capacity and cost of living. The impact of the recent interest rate rise on homeowners is significant, with borrowers who have a $500,000 home loan now paying an extra $1127 per month compared to before the rates started rising. For those with a $1 million mortgage, the monthly repayments have increased by $2251. These are substantial amounts that are putting pressure on homeowners, particularly those who are buying and selling property. The impact of the rate rise is being felt across the property market, with many buyers and sellers experiencing a harsh reality check.

With Australia facing increased levels of migration, a lack of housing supply (both for purchase and rent), as well as significant pressures in the building industry with material shortages, increased costs of labour and several large builders collapsing, the great Australian dream of owning property doesn’t show much sign of slowing down.

Another factor facing borrowers is the upfront cost of stamp duty when buying a home. Stamp duty and land tax are state taxes that are typically levied on the purchase of property, with State governments recently weighing up whether to replace costly upfront stamp duty with an ongoing annual land tax. NSW recently implemented a change to traditional stamp duty, allowing first home buyers who purchase property worth up to $1.5 million to either pay the existing stamp duty up-front or opt for an annual land tax for as long as they own the home.

The Victorian government is now reportedly considering offering home buyers the option of paying yearly land taxes instead of an upfront stamp duty. This change is being considered as part of reforms aimed at combatting housing affordability and broadening the state's tax base. The government is concerned that their revenue base is becoming too reliant on taxes raised from the property sector, particularly the much-criticized stamp duty. Last year, stamp duty raised about $10.4 billion, which is a record 33.9% of Victoria's total tax take. By offering home buyers the choice to either pay stamp duty in advance or pay a smaller annual property tax similar to council rates, this change could be part of a future government housing affordability package to reduce the upfront costs of buying a home.

For homeowners, the debate between stamp duty and land tax can have a significant impact on their finances. Stamp duty can add a substantial amount to the already high costs of purchasing a home. This can be a significant barrier to home ownership, particularly for first-time buyers. On the other hand, land tax is an annual tax based on the value of the land, which can be a more sustainable and equitable way of raising revenue for governments. While the debate between stamp duty and land tax is ongoing, it is essential for homeowners to understand the potential impact of these taxes on their finances.

If you’re considering buying or refinancing, the expert team at Partners Lending can help. The lending advice we provide you is tailored to your personal needs and circumstances, which enables greater flexibility in finding the best lending option and structuring debt to best suit you.

To find out more, contact your advisor or James Thompson, GM Lending on JThompson@pwg.com.au or 0437 940 065.

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.