When buying a property, there are several additional costs you pay as well as the home’s actual price. These can range from legal fees, surveyor fees, moving costs, and Stamp Duty. In this article, we discuss the UK's infamous Stamp Duty, exploring its definition, introduction, and evolution over the years.
What is Stamp Duty?
Stamp Duty is a tax you pay when buying land or a freehold or leasehold property over a certain value. The amount of Stamp Duty payable is determined by the price of the asset, how it will be utilised, and whether you own any other property. If you're a first-time buyer, you're currently exempt from paying Stamp Duty on your first property purchase for up to £425,000.
Why was Stamp Duty introduced?
In 1694, Stamp Duty was originally introduced to England as a transaction tax to raise money for the war against France. It first appeared on documents required to sell land, properties, and any other legal transactions. If documents did not have this ‘stamp’, they were not legally valid, which made sure everyone paid Stamp Duty.
The money raised by Stamp Duty tax was used to fund goods throughout the war, such as newspapers, clothes, hats, patent medicines, and much more. This tax was originally intended to only last for four years, but since then, Stamp Duty has remained present in English society to current day.
Stamp Duty in the past
1765 - Stamp Duty was introduced to the British-American colonies. This tax began to rise, triggering the start of the American War of Independence.
1808 - Originally a fixed amount, Stamp Duty became introduced as a percentage of the value on transfers of properties, land, and shares of what was being transferred.
1950 - If you bought a property with a higher value of £30,000, you would only need to pay one percent of Stamp Duty.
1991 - Due to the major recession in 1991, Chancellor Nigel Lawson increased the Stamp Duty threshold to stimulate demand in the property market.
1992 - As demand grew, the rates were reverted to their original state (£30,000) in 1992. Over the years, the rates steadily increased, matching inflation and the rise in the cost of living.
1997 - In 1997, Chancellor Gordon Brown introduced two different bands of Stamp Duty tax: a lower and higher threshold. These responded and increased due to the rise in house prices.
2014 - Fast forward to the 2000s, when progressive charges were introduced. First-time buyers were announced to be exempt from Stamp Duty on properties up to £500,000.
2020 - A worldwide pandemic hit, and the UK government decided to introduce a Stamp Duty tax holiday to boost property purchases. This allowed all property purchases up to a limit of £500,000 to be Stamp Duty tax free.
Stamp Duty in the present
Currently, Stamp Duty is payable on all property purchases. The amount payable is all dependent on the value of the property. A property valued up to £250,000 has 0% Stamp Duty payable, as well as first-time buyers being able to buy a property with a value of up to £425,000 and pay 0% Stamp Duty.
If you purchase a property between £250,001 and £925,000, you will have to pay 5% Stamp Duty and if the property is valued between £925,001 and £1,500,000, you will pay 10% Stamp Duty. Finally, any property above £1,500,001 has 12% Stamp Duty payable.
Stamp Duty in the future
So, as you can see, Stamp Duty has been around for over 329 years! And it shows no sign of going away. With a change of election having occurred in July 2024, the future of Stamp Duty is most likely going to change. The main change that has been announced to occur under the new government is first-time buyer relief.
Currently, the first-time buyer relief is set at £425,000, but the new Labour government plans to reduce this to £300,000 in April 2025. Labour have also decided to introduce an extra 1% raise on Stamp Duty for non-UK residents, meaning the surcharge will increase to an extra 3% when they purchase a residential property in the UK.
