Stamp duty has been a frequent topic of conversation in recent years when it comes to homes and the property market. But what is stamp duty, will the recent changes help or hinder prospective home-owners, and is there actually a stamp involved?
Stamp duty began, as with so many things in British financial and constitutional history, because of a war with France. In 1694, the English government passed the snappily titled “An Act for Granting to Their Majesties several Duties upon Velum, Parchment and Paper for Four Years, towards Carrying on the War against France.” The idea, for the late 17th century, was a sound one. Wars, as you might imagine, are expensive; and in a world before VAT and income tax the raising of appropriate funds posed a perennial problem for governments and monarchs across the continent. One method of extracting the necessary coin from the purses of their subjects was to require a fee to be paid for any number of items and legal transactions. Paper items such as playing cards, newspapers and almanacks all required the payment of stamp duty. At times even such things as hats, hair powder, gold and silver plates and patent medicines all came under the auspices of stamp duty. Needless to say, stamp duty lasted longer than the four years originally envisioned and by 1808 it had come to be applied on conveyances which were the formal legal documents in the sale of land. If you have ever handled old property deeds you may have seen the actual, physical revenue stamps that were attached to conveyances which showed that the property duty had been paid.
Stamp duty, as you might imagine by now, operated as a form of early VAT; allowing the government to either charge a flat fee or (in the case of property) one that was dependent on the value of the land in question. Over the centuries the scope of stamp duty declined with one of the last non-property examples being personal cheques which were covered until 1971. The name ‘stamp duty’, whilst a historical curiosity, no longer actually conveys what the tax is for which is why the Scottish and Welsh equivalents are known as the ‘land and building transaction tax’ and the ‘land transaction tax’ respectively. These devolved names better convey the purpose behind stamp duty as it exists today. England and Wales do not (for now) have a form of ongoing general tax on property (such as ‘the mansion tax’ you may have heard about in the news) or any tax on the proceeds of sale with the exception of capital gains. As such it remains the primary source of taxation when it comes to transactions in the property market.
Much ado about thresholds
It appears to have become standard practise in recent years for governments to stimulate the housing market though changes (either permanent or temporary) to those thresholds at which stamp duty is payable (and for how much) and by adjusting the various allowances (such as for first-time buyers) that can be claimed. On 23rd September, the then chancellor Kwasi Kwarteng announced as part of the mini-budget that the threshold for the payment of stamp duty would be increased to £250,000 (meaning that stamp duty would only be payable on properties over this price. This figure used to be £125,000) and the threshold for first-time buyers would be increased to £425,000 (again, this used to be £300,000). Whilst the increase in the first time buyer rates are good news for those living in London, where the price of a person’s first property is much higher than the rest of the country) it probably lies beyond the scope of this post to debate whether any saving from stamp duty will be offset by increases to interest rates. The fact that several lenders have started to withdraw mortgage products does not, shall we say, bode well for the stamp duty changes having a positive effect on the property market.
It remains to be seen how much, if any, of the measures announced last month will survive the coming weeks and months. If recent events foreshadow a Labour government, then we may find that stamp duty as it presently exists may be subject to change, not least if some manner of land tax is introduced. Regardless of what happens, you can be sure that we at Stephensons will help you navigate the choppy waters ahead regardless of how much, if any, stamp duty you will pay at the end of it. Call us on 0333 009 5613. Alternatively you can use our online quote calculator to get an idea of your legal fees and one of our conveyancing specialists will call to discuss this with you.
By Noel Davies, case manager