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Stamp Duty - Explained

What is a Stamp Duty?

Written by Jason Gordon

Updated at April 8th, 2022

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Table of Contents

What is a Stamp Duty?How Does a Stamp Duty Work?Academic Research on Stamp Duty

What is a Stamp Duty?

Stamp duty is a tax on documents. Legal documents do not go unlevied, the tax levied of legal documents such as receipts, bank cheques, land transactions, marriage license and other transaction is called stamp duty. Once payment is made on levied documents, a tax stamp has to be affixed or printed on the document, this will indicate that the stamp duty had been paid. Once a stamp duty is paid, the document then becomes legally effective. More modern versions of the tax no longer require a real stamp but there is something to indicate that stamp duty payment has been made.

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How Does a Stamp Duty Work?

Stamp duty is also called stamp tax. The origin of stamp duty can be traced to Spain in the 17th century. The stamp duty was initiated in America when the British Parliament passed the Stamp Act in 1765. Aside from legal documents, stamp duties were also used for copyrights, the transfer of houses, buildings, land permits, patents, securities, and other transactions. This tax was extended to the American colonists. After the origination of stamp duty at beginning of the 17th century, it was later introduced throughout Europe in the next century. Countries such as Netherlands, France, Denmark, Prussia, and England adopted stamp duty. The United States raise revenue through property taxes, import duties and stamp duty on both legal and financial transactions. But now, income and excise taxes have become a substantial tax base for the government. Due to this fact, many believe that it is the right time to do away with stamp duties but stamp duties still exist. The application of stamp duties are not limited to financial transactions, they are also levied in the real estate such as on properties sales, or transfer of properties. Furthermore, stamp duties are levied on mortgages, loans, and other transactions. There are certain ways tax duties are levied on transactions and documents in Britain. In real estate or mortgage industry, for example, no stamp duty was levied on homes not more than 500,000. That is, for properties up to 500,000, there would be no stamp duty paid on the initial 300,000. This stamp duty was on homes up to 300,000 was abolished in Britain towards the end of 2017. First time home buyers benefit from this removal of stamp duty more than old buyers, 80% of first time home buyers were able to save up to 5,000. However, when the stamp duty was abolished, criticisms arose from the labor party at that time.

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