When New Labour swept to a landslide victory in the General Election of 1997, stamp duty was payable at 1% on properties over £60,000.  Immediately, the new Chancellor, Gordon Brown, sensed an opportunity and introduced two new stamp duty bands; 1.5% on properties worth over £250,000 and 2% on those worth over £500,000. Amid the new Labour media honeymoon and the average home worth just £60,000, the proposals sailed through.  Three years later, Gordon Brown repeated the trick, tweaking the top two bands to 3% and 4% respectively.  It was certainly a smart move as far as the Chancellery was concerned; annual tax take soared from £830m to £6.5bn in the first 10 years of Labour Government.

If we go back to 1694, we find the original stamp duty that was levied on only vellum, parchment and paper.  Although only intended to be around for four years, it was such a good earner that it was never repealed.  In the 18th and 19th centuries it was extended to cover a range of items that included newspapers, insurance policies, gold and silver plate and even hair powder.  The tax was extended to property sales in 1808 and its modern history goes something like this:

 

• In 1984 the Conservative Chancellor, Nigel Lawson increased the threshold of stamp duty from £25,000 to £30,000 and reduced the top rate of taxation from 2% to 1%.
• In 1991, during the last property recession, the Conservative Government temporarily suspended all stamp duty on properties worth less than £250,000 for nine months.
• In 1997, New Labour came to power and Gordon Brown introduced two new stamp duty bands at £250,000 and £500,000.
• In the year 2000 the top two bands were raised to 3% and 4% respectively.
• In 2005, the Chancellor finally raised the stamp duty threshold from £60,000 to £120,000.
• In 2006 the threshold was raised slightly to £125,000.
• In 2008 Labour announced an increased stamp duty threshold of £175,000 for one year.
• The 2010 budget saw the latest scenario of a two year holiday from stamp duty for first time buyers purchasing property worth £250,000 or below and properties worth over £1m attracting a 5% stamp duty payment.

 

Up until 20007, with soaring house prices, the tax had been relatively painless; a major annoyance certainly, but no one was feeling inclined to grab a pitchfork and storm the Houses of Parliament.  However, from the moment house prices started to fall the harsh reality of the tax was bound to bite.  After sensing the increasing resentment the Government employed an old Tory trick from 1992 & a stamp duty suspension.

The main problem with the structure of stamp duty is that it simply does not survive any scrutiny.  Income tax, for example is graduated; when you earn over a certain amount you pay extra but you only pay tax at the higher amount on the proportion of your income above that threshold.  With stamp duty, if you buy a house at £300,000, for example, you will pay 3% on the whole amount & total stamp duty equals £9,000.

If stamp duty was structured like other taxes, you would pay nothing on the first £125,000, 1% on the next £125,000 and 3% on the last £50,000 & total stamp duty now equals £2750.  This is one reason why stamp duty is increasingly distasteful and has been criticised by many professional bodies, including the Council for Mortgage Lenders (CML).