Stamp duty
In the UK, stamp duty is a charge on instruments (that is, written documents), and requires a physical stamp to be attached to or impressed upon the instrument in question.
The scope of stamp duty has been reduced dramatically in recent years. Apart from transfers of shares and securities, the issue of bearer instruments and certain transactions involving partnerships, stamp duty was largely abolished in the UK from December 1, 2003 and replaced by two new transfer taxes derived from stamp duty, stamp duty reserve tax (SDRT) and stamp duty land tax (SDLT).
History of UK stamp duties
Stamp duty was first introduced in the UK in 1694, during the reign of William and Mary under ?An act for granting to Their Majesties several duties on Vellum, Parchment and Paper for 4 years, towards carrying on the war against France?. Similar duties had been levied in the Netherlands.
Stamp duty was so successful that it continues to this day through a series of Stamp Acts.
During the 18th and early 19th centuries, stamp duties were extended to cover newspapers, pamphlets, lottery tickets, apprentices' indentures, advertisements, playing cards, dice, hats, gloves, patent medicines, perfumes, insurance policies, gold and silver plate, hair powder and armorial bearings.
The attempted enforcement of the Stamp Act 1765 in the English colonies in America led to the outcry of no taxation without representation and the Boston Tea Party. In some ways, stamp duty led to the American War of Independence.
Historically, stamp taxes were administered by the Board of Stamps. This merged with the Board of Taxes in 1833/1834, and the Board of Inland Revenue was created under the Inland Revenue Board Act 1849 by merger of the Board of Excise and Board of Stamps and Taxes. Stamp taxes are now administered by the Inland Revenue Stamp Taxes business stream (formerly the Stamp Office).
The Stamp Duties Management Act 1891 and the Stamp Act 1891 still contain much of the operative law on stamp duties, although there have been significant amendments subsequently and a partial consolidation was made in Finance Act 1999.
Stamp duty reserve tax
Stamp duty reserve tax (SDRT) was introduced under Finance Act 1986 to ensure that a form of tax equivalent to stamp duty would continue to be payable on the transfer of uncertificated shares. At that time, it was expected that the TAURUS share trading system of would come into operation. In the event, SDRT was adapted for the charge to trading in uncertificated shares in CREST, although stamp duty remains for physical transfers of shares using stock transfer forms.
SDRT is not a stamp tax, but a self-assessed transfer tax. SDRT is usually collected automatically by stock market participants (such as brokers) when a transaction takes place.
SDRT and stamp duty (proper) on transfers of stocks and shares continue to run in parallel.
Stamp duty land tax
Stamp duty land tax (SDLT) is a new tax that was introduced by Finance Act 2003 with effect from December 1, 2003. SDLT is not a stamp duty, but a form of self-assessed transfer tax. SDLT is charged on "land transactions" and, for typical transactions in land, such as the buying and selling of a residential houses, there is little change from stamp duty, except that documents will no longer bear a physical stamp.
For residential house purchases, the current rates in the UK are as follows:
- < £60,000 : 0%
- £60,000-£250,000 : 1%
- £250,000-£500,000 : 3%
- > £500,000 : 4%
SDLT is not a progressive tax so the above percentages apply to the whole purchase price. For example, a house priced at £249,999 would attract a SDLT of just under £2500, but one of £250,000 would be liable to £7500. Some deprived areas have been granted exemption from SDLT.
In recent years, there has been a high level of house price inflation in the UK but no change in these thresholds, leading to a substantial increase in the revenue from SDLT through fiscal drag. In 2000-01, the Inland Revenue received £2.145bn from residential stamp duty. In 2002-03, it received £3.59bn .
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