Are You Entitled to Pay Stamp Duty on a New Build?

Stamp duty is one of the hidden, biggest, and most unexpected costs of purchasing a new home or a piece of land. Thankfully, there is a way by which you can avoid paying stamp duty on your new home that is by building a new home than buying one. However, there are a lot of other things to it, that is why people tend to get confused when it comes to paying stamp duty for the new buildings. 

 

Here’s the truth and that is a few of you will actually consider how much stamp duty you have to pay when you are considering buying a home.  

Stamp duty can be an unpleasant surprise for you and can also leave you feeling deflated, to say the least. Just imagine, you find a new home you really like and you think you can definitely afford it but you discover that you have to pay stamp duty of about tens of thousands of dollars on top of the purchase price. It would literally be a shock. 

Here’s the good news for you! 

It is that there is a perfect legitimate way to avoid paying stamp duty on the actual home. This is the point where most people get confused because on a block of land, you will actually have to pay stamp duty.  

Here’s the explanation! 

Stamp Duty is a tax levied on the transfer of a property.  It is calculated as a percentage of the value of the property at the time you are buying.  

For example, let us say you are purchasing a block of land in Victoria for about $200,000.  When the property is transferred into your name, you will be charged a stamp duty tax or say property transfer tax of about $6,370. There on, you will build a new home. After completion of the new home, you may have your property valued at about $600,000. It means that the extra $400,000 is created by choosing to build on that piece of land.    

On the other hand, if you say, you choose not to build, you would just go and purchase an existing home for $600,000, you would be paying about $31,070 as stamp duty just because of the high value of the property at the time when your property is transferred in your name.  

Do You Pay Stamp Duty on a House and a Piece of Land? 

The answer is no, not on the full house and the piece of land. Again, if the construction has not yet started, you will only be paying stamp duty on the actual value of the land at the time you make a purchase.   

Buying a house or a piece of land is considered an ‘off the plan’ purchase and you might also be eligible for an ‘off the plan’ stamp duty concession.   

Let us understand it with an example; you sign a contract to make a big purchase i.e., for buying a home and land for about $6,10,000.  

The seller/ vendor advises you that the block of the land is worth $155,000 and the cost of building the home can go about $465,000.  In such a case, the stamp duty payable will be calculated on the value of the block of land because that is exactly the value at the time you signed the contract.   

Another most important question- What if the construction had started and you are buying the property half-way through the building process? 

The rule for the amount you pay for stamp duty will be the value of the property at the time of transfer. Suppose you find a home for sale which is in the process of getting constructed. You might agree to buy a home that is not fully built.   

In such a case, the lender will access the actual value of the property at the time you sign the contract. At this point, your stamp duty will be calculated based on the value amount.

   

Let us say that you have found someone who has installed all the facilities in the home with slabs. You meet them and they agree to sell it to you now, despite that house being built. At this point, your lender will value the home exactly at that stage.  

Do First Home Owners Pay Stamp Duty?  

There are a lot of government grants and incentives available for the first-home buyers. The grants and initiatives are designed to encourage people to create more properties and increase affordability for home or land buying.    

First-home owners may be eligible for stamp duty concessions in their state or territory both for building and existing homes.  

Every state and territory in Australia has its own grants and concessions. You must take some time out to learn what you are eligible for. This will help you in maximizing your savings, what else would you want? If you want to know anything more about buying or selling land, contact Raine and Horne, Land Victoria experts. Click here to reach out to us.