First home buyers up $54,000 but empty nesters worse off: Here's what the NSW government plan to abolish stamp duty and create an 'opt in' property tax means for you

The NSW government's ambitious plan to make stamp duty optional is a huge win for first home buyers but may not benefit a family looking for their 'forever home'.

Under the proposal, which was raised during the state budget announcement on Tuesday, home buyers would have the option to pay stamp duty or an annual 'property tax'.

Stamp duty is a lump sum paid on purchase but the annual property tax would involve paying a small percentage of the land's value each year. 

The ambitious plan - which will go to public consultation in March and could be introduced in the second half of next year - has been welcomed by economists, real estate experts and the state opposition.  

Not everyone would be better off with choosing the property tax. A couple buying their 'forever home' for $700,000 would be up for $27,500 more over 20 years. Therefore, would be better off opting for stamp duty over land tax (Stock image pictured)

First-home buyers would benefit with a grant up to $25,000 instead of existing concessions. They can then choose to pay property tax over stamp duty which, on a $750,000 property, would be $29,000 (stock image pictured)

HOW THE CHANGES WILL AFFECT YOU:  

First-home buyer: Could be $54,000 at the time of purchase compared with second-time buyer paying stamp duty

If unimproved land was worth $500,000 they would pay $2,000 a year in property tax

Long-term buyers: Could face a bigger bill if they choose a property tax, which will be $1,812 per year on average and paid until the property is sold 

A couple buying their 'forever home' for $700,000 could be up for $27,500 more over 20 years.  

First-home buyers stand to benefit the most because the government is planning to offer grants of $25,000 to replace existing concessions from stamp duty.

They could then choose not to pay stamp duty - which is $29,000 on a $750,000 home - and instead pay an annual property tax, which would be $1,812 per year on average.

This would mean they are $54,000 better off at the time of purchase than a second-home buyer who chooses to pay stamp duty. 

Buyers with a growing family needing to upgrade would also benefit from the changes depending on how often they choose to buy. 

However, not everyone would be better off choosing the property tax. 

A couple buying their 'forever home' for $700,000 could be up for $27,500 more over 20 years. Therefore, they would be better off opting for stamp duty over the land tax.

Buyers of luxury properties will likely be excluded from the property tax, left with no option but to shell out stamp duty in a bid to limit the initial hit to revenue.  

Stamp duty is a major cash cow for the state government, raising an estimated $8.3billion in the 2019-20 financial year - and scrapping it would require financial help from the federal government in the short term. 

The duty tax can discourage people from moving house and replacing it with an annual land tax would increase the number of sales and let people keep more of their money to spend in the economy, the Treasurer said. 

Buyers of luxury properties will likely be excluded from the property tax, left with no option but to shell out stamp duty in a bid to limit the initial hit to revenue

Buyers with a growing family needing to upgrade as well would benefit from the changes depending on how often they choose to buy

The proposal could also generate $11 billion of economic benefits in the first four years, he said.

'Stamp duty is a relic of a bygone era when you picked one ­career, started a family, bought a home and basically settled in for life,' he said.

Chief executive of Infrastructure Partnerships Australia, Adrian Dwyer hailed it as an 'enduring legacy of positive tax reform'.

'Sensible land tax reform has ­finally been pulled out of the too-hard basket and placed on the table for reasoned public debate,' he said. 

Handing down the state budget on Tuesday, Treasurer Dominic Perrottet (pictured with Premier Gladys Berejiklian) said he wanted the current system reformed 'as soon as possible'

Land tax already applies to vacant land, holiday homes, investment properties and commercial properties over $755,000 but could be expanded to primary homes under the proposal (Stock image pictured)

First home buyers are currently exempt from stamp duty if their home is worth less than $650,000 and receive concessional rates up to $800,000.  

Land tax already applies to vacant land, holiday homes, investment properties and commercial properties over $755,000 but could be expanded to primary homes under the proposal.  

Under current rules, the owner must pay 1.6 per cent of the value of their land above $755,000 to the government each year. For land worth $1,000,000 this figure amounts to $4,020. 

What are stamp duty and land tax? 

Stamp duty - or transfer duty - is a tax that buyers must pay when they purchase a new home. The amount due depends on the value of the property. For a $750,000 property, the duty is $29,085. 

Land tax is an ongoing annual fee that already applies to vacant land, holiday homes, investment properties and commercial properties.

Under current rules, the owner must pay 1.6 per cent of the value of their land above $755,000 to the government each year. For land worth $1,000,000 this figure amounts to $4,020.