January 27, 2011
Stamp Duty is a very old tax. It was first introduced in the UK in 1694 but its roots can be traced back to the Roman Empire in the sixth century. Not that long ago no one was overly bothered by it. It was a relatively obscure tax, levied on the purchase of certain assets, most notably property and shares (note that you don't pay stamp duty when you sell an asset - you just get clobbered with Capital Gains Tax instead).
In 1997, the Chancellor discovered its potential, hiking the rates at which it was charged on property. When Gordon Brown first entered Number 11 Downing Street, stamp duty raked in £2.5b a year. Currently, it gives him almost £9b, which is 70% more than he gets from capital gains tax and inheritance tax combined!
You pay Stamp Duty Land Tax when you buy residential property such as a house or flat. Its payment should be handled by your solicitor, so you don't need to make any special arrangements to pay it.
Please see the HMRC website for current Stamp Duty rates.
Stamp Duty on shares and unit trusts is less painful, being charged at 0.5%. However, it can be a significant cost for frequent traders. Many City-based organisations have called for it to be abolished, to allow the London stock market to become more competitive against the major markets in the US and Europe. However, at least the rate at which it is charged is going in the right direction. Prior to 1984, stamp duty on shares was levied at 2%.
Again, the amount payable is rounded up to the next multiple of £5. It is not rounded up however if you buy shares without receiving a physical share certificate, via a nominee account with an online broker for example. Strictly speaking, paperless transactions (which form the vast majority of transactions these days) are governed by a separate tax, called Stamp Duty Reserve Tax.
Your broker will automatically add it to the cost of any share purchase and pay the taxman on your behalf. Note that you don't have to pay Stamp Duty when you buy shares in a market outside the UK and you don't pay it when you buy gilts or corporate bonds either.