Managing Rising Property Taxes in 2022: 5 Simple Tips
As shown in the graph below, the average Australian mortgage has increased by 16.4%. Whilst the large growth in house prices over the last 18 months has been a large contributor to this, the rise of property taxes also has had an undeniable effect on mortgage sizes. With no signs of the growth of mortgage sizes slowing heading into next year, our property and finance experts have compiled their thoughts into 5 tips. These 5 tips will outline the best way of managing rising property taxes in 2022 to ensure that you are financially positioned in the best possible way.
1. Have a Clear Understanding of Your Property Goals
What is it you want from your property?
- Do you want to get into the market as quickly as possible and capitalise on the large house price growth currently occurring?
- Do you want to pay as little interest and other fees for your loan by growing your deposit?
- Do you want to pay as little property tax as possible?
- What is the timeframe of your investment?
You need a clear understanding of your goals before you venture into the market or make changes to your investment.
2. Balance Your Loan-To-Value Ratio Appropriately
After identifying your property goals, you need to implement these through the Loan-to-Value Ratio (LVR) of your mortgage, or your refinanced mortgage. A LVR is the loaned amount of a mortgage compared against the full price of the property. For example, a loan of $750,000 for a $1,000,000 property would grant you a 25% LVR.
If you are looking to get into a certain property market as quickly as possible, such as capitalising on the 46.1% house price growth of Sydney’s Northern Beaches in 2021, a higher LVR may be a better option for you. Whilst this means that you can access the market quicker, you will pay more interest and fees throughout your loan, the largest of these being Lenders Mortgage Insurance (LMI). The larger the loaned amount, the larger the LMI, which can be in the tens of thousands of dollars.
If your goal is to pay the least amount of interest and fees for a mortgage, a smaller LVR is the best option for you, as you avoid having to pay LMI if your LVR is under 20%. You also have less interest to pay as you are borrowing less.
3. Taking Measures to Reduce Rising Capital Gains Taxes on Property
Capital Gains Tax (CGT) is a tax paid at the time of sale of a property that isn’t the owner’s primary residence. Capital gains are taxed at the same rate as an individual’s income tax rate. If an individual earns more than $120,00 in a year (pre-tax), and they profit off the sale of a property by $200,000, you could potentially pay $89,200 in CGT.
There are multiple ways to reduce CGT:
- First and foremost, holding property for more than 12 months HALVES the amount of CGT you pay on the sale of a property. Ensure that with your property investing, this is the case.
- Investment into affordable housing that meets certain criteria can result in a 60% reduction in CGT on the sale of a property. You can find these criteria here.
- If you know that you will earn less next year, or the year following, you can delay the sale of the property until then. This will reduce the tax rate applied to the sale of the property, reducing CGT.
- Superannuation funds generally have lower tax rates than personal income tax. Investing the funds from the sale of a property into superannuation attracts a lower tax rate. Find out more here.
4. Keeping Up-To-Date With Proposed Stamp Duty Changes in 2022
Within NSW, and potentially other states, there are proposed reforms regarding stamp duty on property. Stamp duty is a large upfront payment of tax paid to the government at the point of purchase for property. There is the potential for this upfront payment to be optionally broken into an annual property tax. This would allow for quicker access into the property market, and make property more affordable for first home buyers.
There is some state and federal support for these proposed changes, however, policies within Australia are more often than not hamstrung and drawn out with red tape. Property owners and investors should follow these potential developments over 2022 to determine whether buying or selling is the next best move.
Find out your Stamp Duty using the calculator below:
5. Seek Professional Advice for Managing Rising Property Taxes in 2022
The world of property, finance and tax is diverse, specialised and complicated. Seeking advice from property and finance experts through a mortgage broker is the quickest way to get you up to speed on managing rising property taxes in 2022. Best of all, mortgage broking services aren’t paid by borrowers directly, with them instead being paid by lenders through commissions.
If you are looking for a mortgage broker with 20 years of experience and an award-winning team of property and finance experts, Vision Property and Finance is here for you. Feel free to get in touch with us here.