How is Stamp Duty Calculated and Collected?

Stamp Duty is perhaps one of the most archaic forms of taxation still in existence in the UK. The method by which it is levied (and, many would suggest, the fact that it is still levied at all) is, in many ways, something of a relic of the past.

In the first instance, it is important to note that the term Stamp Duty can be used either to refer to a specific tax levied on the documents transferring ownership of shares, or to refer to a group of similar taxes, comprising Stamp Duty, Stamp Duty Land Tax, and Stamp Duty Reserve Tax. Each of these duties are calculated and collected in a different way. Indeed, it is Stamp Duty Land Tax that seems so incongruous in our modern age; the documents in question are literally 'stamped' in London by a huge machine built almost a century ago.

Stamp Duty on Property

Stamp Duty is, in essence, a self-assessed tax. This means that it is the responsibility of the individual liable for the tax to ensure that they have accurately calculated their liability and paid it to the right person. The form of Stamp Duty that affects most people is Stamp Duty Land Tax (SDLT), the tax on documents transferring ownership of property. Theoretically, the buyer is responsible for handling the Stamp Duty on the transaction, but in reality much of the work will be done by the solicitor.

It is the solicitor's job to fill out a declaration form, supplied by HM Revenue and Customs (HMRC), outlining the nature of the transaction. This declaration will be passed to the buyer when complete in order for them to sign it; if you are in this position it is important that you check the document carefully.

One of the most vital parts of the form is the section giving the value of the property, as this will determine how much tax you are to pay. At its current levels, SDLT is levied on property transactions with a value greater than £125,000, beginning at a rate of 1%, rising to 3% at over £250,000 to £500,000, 4% at over £500,000 to £1 million, 5% at over £1 million to £2 million and then rising toa whopping 7% on properties over £2 million.

Once the form is complete, it is passed to the Stamp Duty Office via your local Tax Office. Here it will be stamped and returned, with the amount that you must pay given in the stamp. This amount is then payable directly to HMRC.

Stocks and Shares

Stamp Duty and Stamp Duty Reserve Tax (SDRT) are calculated and collected in different ways. Both of these duties are levied at a flat rate of 0.5% of the value of the transaction in question. However, the method of payment is very different. If you are liable to pay Stamp Duty (information on how to tell whether you should be paying Stamp Duty or SDRT is available elsewhere in this section) then you can use the calculator on the HMRC website to ascertain how much you must pay. All you are required to enter is the cost of the shares you are buying and the date of purchase. You are then responsible for making payment direct to HMRC, either through self assessment or separately, depending on which applies to you. If you do not normally pay tax by self assessment, you can pay your Stamp Duty online.

SDRT is the easiest of the family of Stamp Duties to pay. CREST is the standard system for stock transfer, and it incorporates the SDRT calculation. As a result, stock prices will generally include the duty, and it will be automatically deducted by CREST at the time of purchase.