Budgeting to Buy a Home? Make Sure You Understand Stamp Duty

When budgeting to buy a home, it’s easy to focus on the deposit and mortgage repayments. However, stamp duty is one of the most significant upfront costs first home buyers need to plan for. In Victoria, stamp duty can add thousands of dollars to the total cost of a property purchase, making it essential to understand how it works before you buy.

For a first home buyer, stamp duty obligations, concessions, and exemptions can vary depending on the value of the property, your eligibility, and your individual circumstances. Understanding stamp duty in Victoria early can help you budget more accurately and avoid unexpected costs during the home buying process.

What is stamp duty and why do you need to factor it into your budget?

Stamp duty is a tax levied by the Australian government when you buy real property, including residential land and housing. In Victoria, it is known as land transfer duty.

For first home buyers, stamp duty is an important cost to factor into your budget because it can add a significant amount to the overall cost of buying a home. The amount of stamp duty you need to pay depends on the property value, whether you are eligible for a concession or exemption, and your individual circumstances. 

Understanding how stamp duty in Victoria works early in the home buying process helps you plan your finances more accurately and avoid surprises at settlement.

How is stamp duty calculated in Australia?

Stamp duty is calculated as a percentage of the purchase price (or market value, if this is higher) as at the date of the contract. This is a huge bonus for people building a new house. Stamp duty is calculated on the value of the land only. Accordingly, it’s a lot cheaper than if you were to buy an established house.

Understanding how stamp duty is calculated can help first home buyers budget more accurately and avoid unexpected costs when buying a home.

Step 1: Start with the purchase price or market value

Stamp duty is calculated based on the dutiable value of the property. This is usually the purchase price listed in the contract, or the market value if that amount is higher at the time of purchase. The dutiable value forms the foundation for calculating the amount of stamp duty payable.

Step 2: Apply the relevant state or territory rates

Stamp duty rates vary across Australia and are set by each state or territory government. In Victoria, stamp duty, also known as land transfer duty, is calculated using tiered rates, meaning different portions of the property value are charged at different percentages.

Step 3: Understand how building a new home affects stamp duty

For buyers building a new home, stamp duty is calculated on the value of the land only, rather than the total house and land price. This can significantly reduce the amount of stamp duty payable compared to purchasing an established house.

Step 4: Factor in concessions and exemptions

Once the base amount of stamp duty is calculated, any eligible concessions or exemptions are applied. First home buyers may be eligible for a stamp duty exemption or concession depending on the property value and their eligibility, which can substantially reduce the overall cost.

Are there any exemptions or concessions for first home buyers?

If you signed the contract of sale on or after 1 July 2017, you may be eligible for the first home buyer exemption or concession.

You must live in the home as your principal place of residence for at least a 12 month period, and that period must start in the year after you settle. You can’t claim the exemption for a holiday home or investment property.

To be eligible, you must meet the following criteria:

• None of the purchasers of the property have owned residential property in Australia prior to 1 July 2000
• None of the purchasers have lived in residential property that they own for more than six months after 1 July 2000
• None of the purchasers have received the First Home Owners Grant in Australia
• At least one purchaser is an Australian citizen or permanent resident (or will be at settlement or on completion of the build)
• The home has a dutiable value of $600,000 or less (for the first home buyer exemption); or
• The home has a dutiable value of between $600,001 and $750,000 (for the first home buyer concession)

The concession you may be eligible for applies on a sliding scale. The closer your dutiable value is to $600,001, the greater the concession will be. Read more about how concessions work here.

How can understanding stamp duty help you budget more effectively?

Understanding stamp duty helps first home buyers plan their finances more accurately by accounting for one of the highest upfront costs when buying a home. Because stamp duty is paid in addition to your deposit and other purchase expenses, knowing how much you may need to pay allows you to set a realistic budget from the outset.

For buyers in Victoria, stamp duty costs can vary depending on the property value, eligibility for concessions, and whether you are buying a new home or an established property. Factoring stamp duty into your budget early can help you avoid unexpected costs at settlement and make more confident decisions when purchasing a property.

Ready to plan your home budget with expert guidance?

Understanding stamp duty is an important part of planning your home buying budget, particularly for first home buyers navigating upfront costs.

Carlisle Homes helps buyers understand how stamp duty costs may apply to their circumstances and how to plan for them as part of a broader home buying budget. Book a home budget consultation with us and we’ll help you plan your next steps.