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 1 December 2003. "Stamp duty land tax" (SDLT), a new transfer tax derived from stamp duty, was introduced for land transactions from 1 December 2003. "Stamp duty reserve tax" (SDRT) was introduced on agreements to transfer certain shares and other securities in 1986.
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. The argument over stamp duty was a contributing factor to the outbreak of 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 were then administered by the Inland Revenue Stamp Taxes business stream (formerly the Stamp Office). Another merger occurred in 2004, with the Inland Revenue and HM Customs & Excise to form HM Revenue & Customs which now itself manages stamp duty.
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. The Stamp Act 1891 was the inspiration for many of the older Australian stamp duty Acts.
Stamp duty remains in force for shares and securities that are held in certificated form which can only be transferred by using a physical stock transfer form, and runs in parallel to SDRT on agreements to transfer shares. Since 1986, both stamp duty and SDRT have been charged at a rate of 0.5% of the consideration for the transfer of shares (in the case of stamp duty, rounded up to the nearest £5). The same transaction may include an agreement to transfer shares which may trigger a liability to SDRT, and the agreement may later be completed by a transfer of the shares which is liable to stamp duty. Provided that the transfer is stamped within 6 years, the charge to SDRT is cancelled to avoid a double charge.
A higher rate of SDRT at 1.5% is charged for the issue or transfer of shares to a person who operates a depositary receipt scheme or a clearance service (other than CREST, which is exempted). The higher charge compensates for the fact that later transfers of depositary interests or through the clearance services will not attract SDRT. This type of SDRT is by nature paid almost exclusively by offshore (i.e. non-UK) investors, primarily US fund managers and amounts to approx. 25% of the total SDRT collected annually.
A unique feature of SDRT, compared to other purely domestic taxes in the United Kingdom, is that more than 40% of the annual intake is collected from outside the UK, thus creating an annual inflow of approx. £1.5 billion pounds from foreign investors to the UK government.
For typical transactions in land, such as the buying and selling of a residential house, there is little change from stamp duty, except that a tax return is required to be made to the HM Revenue & Customs (previously Inland Revenue) and documents no longer need to be given a physical stamp. Like any other self-assessed tax, but unlike stamp duty, HM Revenue & Customs is able to enquire into an SDLT return and raise assessments to recover unpaid SDLT.
Whether or not tax is payable Her Majesty's Revenue and Customs require a Return to be received by them within four weeks of the transaction completing failing which they have power to levy a fine on the tax payer - the fine is not for failure to pay the tax but for failure to make the return. When a return is accepted by HMRC they provide a Certificate without which it is impossible to register a change in the land ownership.
|up to £175,000||0%|
|over £175,000 to £250,000||1%|
|over £250,000 to £500,000||3%|
SDLT is not a progressive tax, but rather works on a "slab" basis, so the above percentages apply to the whole of the purchase price. For example, a house priced at £250,000 would attract an SDLT of £2,500, but one of £250,001 would be liable to SDLT of £7,500. The result is that SDLT has a distorting effect on the market, because a house is very difficult to sell at prices just above each threshold, for example, £255,000.
In years prior to 2005, there had 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 , rising to £6.5bn in 2007-8
¹ In 2005, the threshold for paying SDLT was raised from £60,000 to £120,000. In 2006, the threshold was further raised to £125,000. In certain disadvantaged areas the threshold is raised to £150,000.
In 2007, at the Conservative Party Conference in Blackpool, George Osborne, the Shadow Chancellor, announced that a Conservative Government would abolish Stamp Duty for first-time buyers on properties up to £250,000.
In August 2008, there was talk of the UK Government offering a "holiday" period in which stamp duty would not be payable, in order to attempt to jump-start the housing market. However, many believe the Government's indecisiveness on the issue has actually "frozen" the market. People are not buying houses, as they expect the Government may cut or reduce stamp duty in the near future, which would save buyers thousands of pounds.
On 2 September 2008, the UK Government announced that the threshold for paying SDLT would be raised from £125k to £175k for one year, as from 3 September 2008.