Gavin R. Putland,  BE PhD

Saturday, March 22, 2014 (Comment)

How to avoid stamp duty when you move house

Don't sell your home and buy another; let it to tenants and rent another.

It is often alleged that conveyancing stamp duty (real estate transfer tax) discriminates against people who relocate frequently. But if you're a home owner, you don't have to pay stamp duty just because you have to relocate. If you let out your home to tenants and rent your new address, there's no change of ownership, so you pay no stamp duty, no conveyancing fees, and no agent's commission on any sale. Then you can spend a small fraction of those savings to negotiate any special security of tenure, or flexibility of tenure, that you may need at your new address. Thereafter, every time you need to move, you do it in the rental market without incurring stamp duty, fees, or commissions.

“But wait, there's more!” In Australia, if you move out of your home and let it to tenants, you can start claiming your mortgage interest,* council rates, and other related expenses against your taxable income, even if the outgoing expenses exceed the incoming rent (“negative gearing”). You can't do that with an owner-occupied property, even if the expenses exceed the rental value — as they often do.

If you let out your home, will you start paying land tax and rental management fees? Probably; but that's all income-tax-deductible too — unlike stamp duty, conveyancing fees, and commissions, if these are incurred on selling or buying your principal residence.

If you live away from your property for long enough, will you have to pay capital gains tax on any eventual sale? Only if you actually make a capital gain! No such safeguard applies to stamp duty, conveyancing fees, or agents' commissions.

Of course, if everyone adopts this strategy for avoiding stamp duty, governments will be forced to change the rules; but early adopters will save a fortune in the mean time.


* To the extent that the related borrowings were spent on the home, not on other things.

[First posted Jan.14, 2012; revised Mar.22 & May 8, 2014.]

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