Building a new home can be an expensive process. With home insurance, conveyancing or solicitor fees, and mortgage insurance, costs start to add up quickly. One of the largest payments you’ll make during this process is stamp duty. Although the added cost is substantial, there’s no avoiding it unfortunately, since every real estate purchase accrues a stamp duty cost. But what is it? We’ve got a quick summary of what stamp duty is and why you need to pay it.
What is Stamp Duty?
Stamp duty is a form of tax written on certain transactions, like real estate, that is imposed by state and territory governments. It is paid by the purchaser of the property. The amount imposed on the transaction will vary from state to state, but each state and territory in Australia imposes stamp duty on real estate purchases.
How is Stamp Duty Calculated?
The amount of stamp duty you’ll pay depends on a number of factors. The location of the land or property being purchased, whether you’re a first home buyer, and whether you’re buying land or a dwelling, and whether you’re purchasing an investment property or plan to live in the property all contribute to the final amount of stamp duty calculated for your purchase. The amount is calculated on either the expected value of the land and buildings or the purchase price of the land and existing dwelling as at the date of the contract of sale, which is the date when the contract of sale is signed and the deposit is paid by the purchaser. Many financial institutions and State Revenue Office websites offer stamp duty calculators so you can estimate how much stamp duty will be applied to your real estate purchase.
Stamp Duty Exemptions
There are some instances where stamp duty may be reduced depending on your circumstances. These include purchases by first home buyers, pensioners, low property value, deceased estates, and off the plan purchases. When you’re ready to purchase land or a home, research the stamp duty exemptions in the state your purchasing in order to see if you qualify for a reduced stamp duty rate.
When is Stamp Duty Paid?
Stamp duty is paid to the State Revenue Office in the state of purchase prior to the lodging of the transfer of land to the land titles office. Usually the purchaser’s lender or legal representative pays stamp duty after settlement, often with funds that the purchaser contributed before settlement occurred.
How to Reduce Your Stamp Duty
The most obvious way to reduce the amount of stamp duty you’ll pay is to buy a less expensive property. However, with the cost of real estate fluctuating this isn’t always possible. In most states and territories, stamp duty increases significantly when the purchase price goes over $500,000. You may opt to look for property in a regional area or even in a different state to decrease the amount of stamp duty you’ll pay. If you’ve purchased a house and land package and will be building a new home, the stamp duty is calculated on how much the property is expected to be worth, so reducing the cost of the build by sticking with the standard inclusions offered by your builder will help keep the build costs low and subsequently lower the property’s initial value.
When purchasing a new home, whether it’s land or a dwelling, you’ll be required to pay stamp duty on your purchase. This is something you should budget for when saving a deposit to purchase so there are no nasty surprises. Researching estimated stamp duty costs using online calculators will help you allow for this payment on top of you deposit, ensuring you’re not out of pocket with an expense you weren’t expecting. For more home building tips, visit the Hotondo Homes website today.
Hotondo Homes is not a licensed financial expert and we recommend speaking to a licenced financial professional before making a real estate purchase.