Stamp Duty Explained: Understanding its Purpose, Origin, and Possibility of Refunds

The Evolving History of Stamp Duty: From Wig Powder to Second-Home Surcharges

Stamp Duty Land Tax (SDLT), despite its name, is now a self-assessed tax and no longer involves physical stamps. However, its history is marked by its evolution from a tax imposed on various items, such as wig powder and perfumes, to a more complex system today. The recent admission by HMRC that 15,700 people have overpaid on the second-home surcharge since its introduction in 2016 highlights the complexities of the current SDLT system. Nevertheless, it is fascinating to reflect on the history of Stamp Duty and its journey from being imposed on items like dice and cheques to the current tax system.

The aim was to suppress criticism of politicians, as publications that were critical had to pay a duty of a penny per whole newspaper sheet

Stamp Duty was first introduced in the UK in 1694 during the reign of William and Mary. It was initially imposed as a temporary tax on vellum, parchment, and paper to fund the war against France. However, the tax was never revoked and expanded over time to include other items, such as newspapers and pamphlets, playing cards, perfumes, and hair powder. In 1712, the Stamp Act was passed, which extended the tax to include newspapers and pamphlets, with the exception of those sponsored by the government or members of parliament. This reveals not only the desire to raise revenue through the tax but also the political motives behind its manipulation.

The Suppression of Free Speech through Stamp Duty

The expansion of Stamp Duty to include newspapers and pamphlets had the aim of suppressing criticism of politicians. The tax required a duty of one penny per newspaper sheet, half a penny for a half sheet, and a shilling for each advertisement in the publication. The result of this tax on knowledge was that some publishers went out of business, while others increased the size of their newspaper pages to avoid paying the duty.

Stamp Duty on Home Purchases

In the 1950s, Stamp Duty was extended to house purchases. At the time, it was a simple tax with no duty paid on homes worth up to £30,000 and only 1% of the purchase price above that threshold. The average home price was £20,000, so only a small portion of home purchases attracted the duty. Alan King of Jackson-Stops describes the simplicity of the tax when it was first introduced.

The former Chancellor of the Exchequer, Gordon Brown, is known for his complicated approach to tax reform. During his time in office, he introduced new tax bands and increased rates for Stamp Duty Land Tax (SDLT) on property purchases. This led to a significant increase in annual revenue for the Treasury, which rose from £830 million to £6.5 billion in the first decade of the New Labour government.

Another Chancellor, George Osborne, added a 3% surcharge for second home purchases and increased the top rate band to 12% or 15% for second homes and buy-to-let properties. Philip Hammond then established different banding for first-time buyers.

This complicated approach to tax reform has resulted in a system that is far from simple, with a range of different rates and banding.

The revenue generated by SDLT continues to be substantial, making it a significant source of income for the government

Stamp Duty on 2nd homes

The second-home surcharge has been the source of much confusion, leading to instances of incorrect payment. Properties that may appear to be second homes but are actually exempt include granny flats or annexes purchased simultaneously with the primary residence and having a value no more than one-third of the overall price, as well as inherited properties.

The good news is that individuals who have overpaid their SDLT due to the second-home surcharge can apply for a full refund. However, the question remains, how many people are aware of this fact and are taking advantage of this opportunity to reclaim their surplus payment?

Regarding replacement main residences, if the new home is purchased before the old one is sold, a 3% surcharge must be paid. But this surcharge can be refunded if the previous residence is sold within three years of the new purchase. Contact the experts here at Stamp Duty Rebates, we are a helpful bunch and will guide you through a Stamp Duty claim.