Moving house is expensive at the best of times. When you throw in stamp duty, it can become even more difficult on the household finances. At the upper end of the property spectrum, the unpopular tax can add tens of thousands to the cost of a new home. Changes to rules involving second properties have recently made stamp duty even more expensive for those attempting to build a buy to let empire or purchase a holiday home.
If you’re currently in the process of buying a new home, understanding exactly where this tax came from may make the burden a little easier to bare. Take a look at our brief history of stamp duty to find out more.
The origins of stamp duty
Stamp duty is thought to have originated in 17th century Spain. Almost every type of official document required a stamp to be affixed or impressed on the surface in order for it to become legal, and so petitioners had to pay a ‘stamp duty’ to the people in charge. By 1694, stamp duty had made its way to the UK. By the 18th century, the tax was so successful it was extended to cover a wide variety of documents including lottery tickets, advertisements, newspapers, pamphlets and insurance policies.
Stamp duty and the American War of Independence
In 1795, Parliament passed the Stamp Act. This required stamp duty to be paid on a wide range of products and transactions. When the government tried to enforce the Stamp Act in America, officials rose up against it. They were frustrated that the US was being forced to pay taxes without receiving a voice in Parliament. People united under the motto ‘no taxation without representation’. The argument raised tensions considerably and the disagreements over stamp duty contributed directly to the outbreak of the American War of Independence.
Stamp duty today
Between 1782 and 1971, stamp duty was charged on all cheques in the UK. The tax was one penny per cheque until 1918 when the rate was raised to twopence. In December 2003, stamp duty was largely abolished in the UK and replaced with Stamp Duty Land Tax (SDLT). SDLT is not a stamp duty, but a form of self-assessed transfer tax charged on land transactions. In reality, there is little difference between Stamp Duty and SDLT and many property owners may not have even noticed the change.
In 2005, the threshold for paying SDLT was increased from £60,000 to £125,000 because of rising house prices. In 2010, the Chancellor introduced a new 5% rate for properties over £1,000,000 and in 2012 a 7% rate for homes worth more than £2,000,000 was brought in.
With the Government making billions of pounds every year through stamp duty, it’s unlikely this tax will be going away anytime soon. If you’re unsure whether or not stamp duty applies to your property purchase, talk to one of our expert team members to find out more.