A land transfer tax is a one-time tax which is assessed when a property changes hands. The tax is paid to the regional government, and it typically takes the form of a percentage of the purchase price. Land transfer taxes are separate from the title fees which many regional governments charge to record a change of title in their records. Not all regions have land transfer taxes, and information about such taxes is usually available from real estate professionals.
Local governments utilize land transfer taxes for a variety of things, from funding specific enterprises to supplementing the budget for schools and other needed services. Voters usually have to approve any changes in the land transfer tax policy for an area, and they must also approve the terms of those changes. For example, a city can ask voters to approve a temporary increase in the land transfer tax to make up a budget shortfall, or to approve a permanent increase.
Depending on the regional laws, this tax may be paid by the buyer, the seller, or both. The terms of the land transfer tax are usually included in the contract drawn up between buyer and seller so that both parties are aware of what is expected. In rare cases, one of the parties may volunteer to pay the land transfer tax on behalf of the other, to sweeten the deal or facilitate an agreement when the two parties are having difficulty agreeing on the terms of a real estate deal.
When buying property, people should think about the impact of the land transfer tax, because it is usually payable immediately, and it can be significant when added to other closing costs associated with real estate purchases. People who are buying property for the first time may also want to ask about rebates and other programs which offset the price of the tax for new homebuyers. Some governments may also waive the tax for people purchasing their first primary residence.
Property owners should also know that failure to pay taxes can result in very serious legal consequences, whether or not they were made aware of such taxes. It is a good idea to consult the agency which handles property taxes to confirm that all taxes on a property are current, and to confirm that tax payments have arrived and been recorded. Property owners may also want to make a note of when the general property taxes are due, so that payments can be made in a timely fashion whether or not the government sends a tax bill.