What is a Stamp Duty

Stamp duty is the tax placed on legal documents, usually in the transfer of assets or property.

BREAKING DOWN Stamp Duty

Stamp duties, where enforced, were placed on the transfer of homes, buildings, copyrights, land, patents, and securities, as well as military commissions and marriage licenses. The stamp duty is also referred to as a stamp tax.

Stamp duties were thought to originate in Spain in the early 17th century and was introduced throughout Europe over the next century, 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 paper, for example, licenses, newspapers, a ship's papers or legal documents. At the time, funds collected from stamp duties were used to pay for positioning troops in certain locations of America.

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. 

History of Stamp Duties

Before income and consumption taxes were a substantial tax base, governments raised revenue 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 have them?

Today, typically, 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. Stamp duties are kept in place as a reasonable revenue stream for the state, through taxes, and to keep people from speculative investments in real estate. 

Stamp Duties in the News

In recent news, in late 2017, Britain abolished the stamp duty 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 significant cuts in stamp duties for 95% of first time home buyers, 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 UK. The Labour Party criticized the measure at the time, as a half-measure, that wouldn't keep houses affordable, but would instead drive the price up.