What is Stamp Duty?

Stamp Duty has become one of the most contentious taxes levied in the UK. There is a periodic resurgence in anger towards the duty tending to resurface during periods of high interest rates.

This timing (and, indeed, the anger itself) can be explained by the nature of the tax. Stamp Duty is a catch-all term for a number of different taxes that are levied on documents which transfer ownership of property or shares. Stamp Duty has become intrinsically linked with house-buying, but it also applies to several other types of purchase.

Stamp Duty and Property

Stamp Duty is a target of public anger during periods when mortgages are at their most expensive, as it pushes up the price of buying a house, sometimes to a considerable degree. The tax is paid not on the transfer of property but on the documents that confer transfer of ownership. The documents relating to the transfer of ownership of houses, apartments and any other type of land or building are all subject to a tax called Stamp Duty Land Tax (SDLT), while the documents relating to the transfer of shares are subject either to Stamp Duty or to Stamp Duty Reserve Tax (SDRT), depending on the type of transaction.

The way in which SDLT is levied is significantly different to the way in which Stamp Duty or SDRT are levied. SDLT is calculated on a sliding scale, with charges of between 1% and 7% being required, depending on the total value of the property being transferred. There is, however, a non-payment threshold; if the property being transferred is being sold for less than £125,000,(£150,000 in a designated disadvantaged area)no SDLT is due.

Stocks and Shares

Stamp Duty and SDRT are levied differently; both of these taxes are payable at a flat rate of 0.5% of the value of the shares being transferred. Only one of these taxes will be payable on each transaction, and the type you will pay will depend on the method by which the transaction is completed. If you are making a transfer using a physical stock transfer form, you will be required to pay Stamp Duty, while SDRT is due on transfers that take place electronically, without the use of such a form. Inevitably, with the increased reliance on the internet for share trading, SDRT is rapidly becoming the most-often levied form of Stamp Duty On Share Transfers.

Similarly, the way in which duties must be paid to HM Revenue & Customs (HMRC) is different depending on the type of tax being paid. As a basic rule, SDLT is the responsibility of the property buyer, although in reality it will be your solicitor who takes care of the process for you. Stamp Duty is also the responsibility of the buyer, who will be required to declare it themselves; this can be done on the HMRC website, where you will also find a Stamp Duty calculator.

Finally, SDRT is often either included in the purchase price or will be automatically deducted by the CREST electronic transfer system, if this is used. Further information on the ways in which different types of Stamp Duty are levied is available elsewhere on this site.