What Is a Stamp Duty?
Stamp duty is the tax governments place on legal documents, usually in the transfer of assets or property. Governments impose stamp duties, also known as stamp taxes, on documents that are needed to legally record certain types of transactions. This includes legal documents recording marriages, military commissions, and the sale or transfer of a property.
Historically, governments impose these taxes in order to raise money to fund government activities and projects. Stamp duties were thought to originate in Spain in the early 17th century. These taxes were called stamp duties because a physical stamp was used on the document as proof that the document had been recorded and the tax liability paid.
- A stamp duty—also known as a stamp tax or documentary stamp tax—is a tax a government imposes on documents that are required to legally record certain types of transactions.
- Governments have imposed stamp duties on a variety of documents, including those related to the sale or transfer of property, real estate, patents, securities, and copyrights.
- Governments impose these taxes as a source of revenue to fund government programs and activities.
Understanding a Stamp Duty
The stamp duty is also known as a documentary stamp tax. Governments around the world enforce these taxes on a variety of legally recorded documents. Governments have placed stamp taxes on the transfer of homes, buildings, copyrights, land, patents, and securities.
Before income and consumption taxes were a substantial tax base, governments raised revenue primarily through property taxes, import duties, and stamp duties on financial transactions. As income and consumption have grown, though, it might have made sense to do away with stamp duties. So, then, why do we still have them?
Simply put, they provide a steady stream of income for governments to fund their activities. Today, however, stamp duties apply to far less than the broad category of "financial transactions." They do remain on properties, though. They are levied when real estate is transferred or sold, and, additionally, many states levy taxes on mortgages and other instruments securing loans against real estate.
While the United States formerly imposed stamp taxes on various transactional documents, today, there is no federal stamp tax. Only states impose stamp taxes in the United States. Stamp duties are kept in place as a reliable revenue stream for the states and to keep people from speculative investments in real estate.
History of Stamp Duties in the United States
By the 17th century, governments had introduced stamp duties throughout Europe. Over the next century, they had become a common form of taxation in the Netherlands, France, Denmark, Prussia, and England.
Americans will remember that the stamp duty was initiated when the Stamp Act of the British Parliament was passed in 1765. The tax was imposed on American colonists who were required to pay tax on all printed papers, such as licenses, newspapers, a ship's papers, and other legal documents. The British government said the funds collected from stamp duties were needed to pay for positioning troops in certain locations of America and to pay for the massive war debt Britain had incurred during the Seven Years' War.
The American colonists were outraged by the imposition of additional taxes, which they believed was a deliberate attempt by Britain to control commerce and curtail colonial independence. The Stamp Tax was enacted without the knowledge or input from the colonies; the enactment of this type of legislation became known as taxation without representation. The Stamp Act led to the first concentrated effort by the colonists to resist British authority and is seen as a milestone event leading up to the American Revolution.
Stamp Duties in the News
In late 2017, the U.K. government abolished the stamp duty land tax (SDLT) on homes up to £300,000 and stated that for properties up to £500,000, no stamp duty would be paid on the first £300,000. This has led to significant cuts in stamp duties for 95% of first-time homebuyers, with 80% paying no stamp duties whatsoever. And according to the British government, it means savings of up to £5,000 for first-time buyers.
The tax break came as the Conservative party attempted to address a rather stark housing crisis in the United Kingdom. The Labour Party criticized the measure at the time, as a half-measure, that wouldn't keep houses affordable, but would instead drive the prices up.