Stamp duty has been subject to many changes historically, and is now known today as the infamous (yet perhaps not popular) stamp duty land tax. Now payable on residential homes and pieces of land purchased in the UK, stamp duty can be both daunting and confusing. Read this guide to find out everything you need to know regarding the history of stamp duty, what it is, and how it works today.

Why Does Stamp Duty Exist?  

In 1694, during the Nine Years’ War, England introduced Stamp Duty as a means to fund the war against France. Originally, stamp duty imposed tax duties on legal documents like cheques, property, land transactions, receipts and much more. 

Following the success of stamp duty and how it contributed towards the crown’s treasure, the country then extended the tax to cover other items, such as newspapers, advertisements, hats, perfumes, playing cards and other items too. Today, this continues in the form of Stamp Acts. 

When Was Stamp Duty Introduced? 

All other forms of stamp duty, such as on cheques and domestic products, have since been scrapped. Meanwhile, stamp duty tax remains on properties – as it has proven successful for bringing in revenue to the government. 

During the 1950s, stamp duty was then made applicable to house purchases. However, the amount of tax payable differed greatly in price to what it is today, and the average home was only £20,000 so fewer people paid it. Homes bought for up to £30,000 were exempt from stamp duty, meanwhile those bought above this threshold only had to pay 1% of the purchase price. Evidently, a vast contrast to what people have to pay in stamp duty land tax today. 

In 2003, stamp duty was then born into what is now known as Stamp Duty Land Tax (SDLT)Stamp duty land tax is a tax paid on properties and land in England and Northern Ireland. How much tax property buyers pay depends on a variety of factors, such as the value of the home, where it is located and what type of category of buyers they fall within. 

Stamp Duty Land Tax, despite its name, is also now not stamp duty but a form of self-assessed transfer tax which is applicable to land transactions. Many people, furthermore, due to the ever changing rules and loopholes often overpay in stamp duty – with a staggering £2 billion being overpaid on average each year. 

How Does SDLT Work Today? 

Today, SDLT is now payable on residential homes and land purchased in England and Northern Ireland (Scotland and Wales have their own similar tax schemes). When one purchases a land or property, they must file a return to HMRC. Those that do not have to pay any stamp duty also have to file a return, as not doing so can also lead to fines. 

Stamp duty land tax is usually paid within 4 weeks of the purchase date of a property. After this period, the buyer will then have 14 days to pay the stamp duty. Homebuyers either complete this process themselves or through solicitors. Either way, the money is sent directly to HMRC. 

How Much Is Stamp Duty Today? 

How much is payable in stamp duty land tax depends on several factors. You can use a free online stamp duty tax calculator to find out how much you owe. However, generally, the tax rates for purchasing a first home are as follows: 

  • 0% on properties worth up to £250,000 
  • 5% on properties worth between £250,001 – £925,001
  • 10% on properties worth between £925,001 – £1,500,000
  • 12% on properties worth over £1,500,001 

There are, nonetheless, exemptions that apply. For instance, first-time buyers are exempt from paying any stamp duty on properties worth up to £425,000. After this value, they will then have to pay at a discounted rate on properties worth up to £625,000. After this amount, normal rates apply. 

Am I Exempt from Paying Stamp Duty? 

Buying a home is expensive, and stamp duty is an additional cost which many homebuyers are reluctant to pay. Nevertheless, stamp duty must be paid otherwise it will lead to fines and potential financial difficulty in the future. 

Many buyers, however, do overpay in stamp duty – and is likely due to how many rules and exemptions are set out by HMRC. In such cases, people are entitled to a stamp duty rebate, or refund on the original stamp duty paid. 

Those that are exempt from paying stamp duty are those purchasing properties worth less than £40,000 as well as first-time buyers (up to certain rates). In addition, those that sell their main residence within 3 years of purchasing their second home are entitled to a refund on the 3% surcharge they initially paid.