Stamp Duty in the United Kingdom refers to a form of tax that is charged on all written documents. In the past, physical stamp was attached to the document. Today, physical stamps are no longer required.
Stamp duty was first introduced in June 1694, as part of measures to sustain the war against France at the time. The success of the scheme meant that stamp duties were extended in the 18th and early 19th centuries to cover different every day goods ranging from newspapers and hand gloves to patent medicines and armorial bearings.
The scope of stamp duty has been dramatically reduced in recent years. It was almost completely abolished in the UK in December 2003. Stamp duties now exist only for transfers of shares and securities, certain transactions involving partnerships. However, a new transfer tax derivative of stamp duty known as “Stamp Duty Land Tax (SDLT)” was introduced for all land transactions on December 1st 2003.
Stamp Duty Land Tax is not really stamp duty. It is a transfer tax that is charged on completed land related transactions and it is self-assessed. When it comes to sale and exchange of land related assets, the situation today still holds some semblance to the standard stamp duty years. The major change is that tax returns are now due to the HM Revenue and Customs and there is no need for a a literal stamp in documents. HM Revenue and Customs can at any time investigate an SDLT return and recoup underpaid or unpaid SDLT where assessments show underpayment as is the case with all other forms of self-assessed tax.
The HMRC expect duly paid SDLT returns within 30 days of the completion any land based transactions. They have the right to fine defaulters who do not complete payment or miss the deadline. A certificate is issued HM Revenue and Customs after a return has been accepted. Without the certificate, the change in land or property ownership cannot be registered. Although the HMRC documents clearly states that Land Tax is due within four weeks of transaction completion, mortgage lenders can have different requires on when the SDLT can be paid.
The years before 2005 were marked by spiralling property price inflation across the UK. This led to an increase in revenue from the Stamp Duty Land Tax. The Shadow Chancellor at the time, George Osborne stated that under a Conservative Government, there would be no Stamp Duty for people buying new properties for the first time as long as the properties weren’t valued more than £250,000. A Coalition Government was formed in 2010, leading to the abandonment of the pledge.
The UK Government announcement of 2nd of September 2008 stated that the limit for paying Stamp Duty Land Tax would be increased to £175,000 for one year starting from the 3rd of September 2008 from its former level of £125,000. The “Stamp Duty Holiday” as it was known was, however, allowed to run up to the end of 2009, following the2009 budget. The Chancellor cancelled the stamp duty on homes with values less than £250,000 for people buying properties the first time in the 2010 budget but a time-line of two years was fixed for this. The 2010 budget also saw an introduction of a new rate of 5 per cent tax charged on properties with close value of at least £1,000,000.
Chancellor George Osborne announced a 7% tax rate for all properties valued at £2,000,000 and above in 2012. This move was deemed a political one, as Liberal Democrats in the UK were calling for what was referred to as a “mansion tax”.
The 2014 Autumn Statement marked another milestone in the SDLT history as Chancellor George Osborne stated a reform to stamp duty targeted at removing the slab element. It meant that stamp duty can now only be paid on the amount above the specified threshold rather than a rate based on the complete amount of the transaction.
The 2015 Autumn Statement, led to the latest and most topical change to the Stamp Duty Land Tax. Chancellor Osborne announced a 3% surcharge over the normal rate for any particular property value for all buyers of second homes with effect from April 2016. The homes affected includes buy to let and holiday homes.
All buyers of an additional residential property that costs £40,000 and above are expected to pay the new stamp duty. As stated earlier, it covers the holiday homes, buy-to-let investments as well as main residences. People who only own shares in another property are deemed to have a first property already as long as the share is worth the minimum amount of £40,000.
Properties owned in other parts of the world are taken into consideration. This means that owners of properties or shares worth £40,000 at least in other parts of the world but buying their first property in the UK have to pay the extra tax charged.
The higher rates of Stamp Duty affects purchased in England, Wales, Northern Ireland and Scotland.
The new change to the SDLT kicked in from 1 April, 2016. However, it was first announced in the 2015 budget. People who completed second home purchases by midnight on 31st March 2016 were exempted from the tax. Exchange of contracts were deemed as proof of completion for exchanges completed before 25 November, 2015 which was the date of the announcement. Since the tax surcharge kicked in, the HMRC expects all tax payments to be completed within 30 days of property purchase completion.
Today, the Stamp Duty is charged on a tiered basis. This means property owners only have to pay the higher rates on the slice that is above the threshold. The Stamp Duty situation is similar to income tax. However, the additional 3% surcharge is calculated based on the total purchase price of the property.
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