The History Of Stamp Duty

The History Of Stamp Duty.

The term ‘stamp duty’ comes from the fact that historically, actual stamps were placed on documents following their presentation to the Stamp Office, evidencing that payments had been made. Stamp Duty was introduced in England in 1694 and was originally intended to last for four years to provide the country with funds to continue one of its many wars against France.

In the past Stamp duty has been charged on items such as cheques, newspapers, hats and insurance policies. It wasn’t until the 1950s when it began to noticeably impact house buyers.

Read on for a history of stamp duty and learn all about the history of stamp duty rates in the UK

History Of Stamp Duty Rates Over the Years.

Historically stamp duty was charged at a single rate on the whole purchase price of a property, with different rates for different value bands. From the mid-1980s to the early 1990s, buyers paid either no stamp duty (as it was then known – it became ‘Stamp Duty Land Tax’ in 2003) or 1% if the purchase price exceeded £30,000.

When the sale price of a property exceeded the threshold for a higher rate of duty, tax would be charged on a ‘slab basis’, at the higher rate on the whole value of the sale rather than the portion of the price above that threshold. Rates were the same regardless of the number of properties owned by the buyer.

Between December 1991 and August 1992, in the midst of the recession, falling house prices, high interest rates and an inflated pound, Conservative Chancellor Nigel Lawson increased the threshold to £250,000 to initiate higher demand in the housing market.

In 1997, then-Chancellor Gordon Brown introduced bands above which higher payments would be charged – the upper band was set at £500,000. Ever since, the lower and upper thresholds have been raised in response to rapidly rising house prices.

Between July 1997 and November 2014, the 0% threshold increased from:

£60,000 in 2000, to
£120,000 in 2005, then to
£125,000 in 2006 where it remained bar two exceptions.

As part of its response to the 2007/2008 global Credit Crunch and the recession into which the UK had fallen as a result, Gordon Brown’s government announced a stamp duty holiday for purchasers of properties up to a value of £175,000 to stimulate demand at the bottom of the market.

Between March 2010 to January 2012, New Labour also introduced a 0% threshold of £250,000 for first time buyers. This tax break wasn’t enough to save New Labour and the Conservative-Lib Dem coalition came into power in May 2010, bringing its own more fundamental changes to the system.

Stamp duty rates for those with homes in the £125,000 – £250,000 bracket remained unchanged since 1997 at 1%, until the Coalition’s new ‘slice’ system was introduced in December 2014 at which point the rate doubled to – and remains at – 2%.

By contrast, there has been a steady upward shift in stamp duty since 1997 for those in the £250,000 – £500,000 bracket – within which many average house prices fall.

The effect of the slab system meant that some properties valued close to the top or bottom end of a bracket were being priced artificially. To overcome this (and presumably to raise revenue), the slab system was overhauled by the coalition government in December 2014.

Therefore, in December 2014, then Chancellor George Osborne announced that SDLT would be charged on residential property on a ‘slice basis’ and rates would only apply to the part of a property’s selling price that fell within each value band. It was estimated that this reform would cost £395m in 2014/15, rising to £760m in 2015/16.

SDLT CALL TO ACTION

Higher SDLT Rates Introduced.

In December 2015 Mr Osborne announced that from 1 April 2016 new higher rates of SDLT would apply on the purchase of additional residential properties, such as second homes and buy-to-let properties.

Not satisfied with the reach of the new ‘slice’ system and with pressure mounting politically regarding the availability and affordability of homes and absentee foreign second-home owners, in April 2016 the coalition government introduced an additional 3% rate that applies irrespective of the property price. In the 2016 Budget, the Chancellor announced that though the main principle would remain: higher rates apply to a purchase if the buyer ends up with more than one property, but not if the property purchased is to replace one’s main residence, which is being sold. The new higher rates were forecast to raise £675m in 2016/17, rising to £750m in 2017/18.

In the 2017 Autumn Budget, then Chancellor Philip Hammond announced that for first time buyers, the price at which a property became liable for SDLT would be set at £300,000 but would not apply for purchases of properties worth over £500,000. It was estimated that the new relief would cost £125m in 2017/18, rising to £560m in 2018/19.

In the 2018 Budget Mr Hammond announced that the relief for first-time buyers would be extended to all first-time buyers of shared ownership properties valued up to £500,000.

Chancellor Rishi Sunak did not propose any major changes to SDLT in the 2020 Budget, but announced a temporary increase to the nil rate band (NRB) for residential house sales, from £125,000 to £500,00 due to the Coronavirus pandemic. Sunak extended the stamp duty holiday in March’s Budget meaning that anyone buying a home costing up to £500,000 before the end of June will now not pay SDLT at all, saving up to £15,000, with a reduced discount available until the end of September.