It is the tax that is placed or imposed on legal documents by the government.
How Stamp Tax Works
The government imposes stamp tax on military commission, marriage licenses, copyrights, cheques, receipts, land transfer files, and patents. The stamp tax will indicate that the tax on the documents has been paid to the government before the transaction becomes legally effective.
The stamp tax is usually on transferring property or assets from one person or body to the other. Stamp tax is popularly known as stamp duty. In most states and countries in Europe, stamp tax is more prominent and focused on real estate and properties than other documents.
On residential properties, stamp tax on properties range from 0%, 2%, 5%, 10% and 12%. On commercial, it ranges from 0%, 2%, and 5% stamp tax. The main aim of the stamp tax is for the government to generate some source of revenue to implement government activities.
Example of Stamp Tax
Let's use Agatha as a case study. Agatha is about to get her first home, and the property she is purchasing is worth the value of £700,000. She will be required to pay 0% of the first £125,000, then 2% on the next £125,000, and the remaining £450,000, she will pay 5% stamp duty. Therefore in total, she will be paying £25,000.
On commercial buildings, if Daniel got an office or store valued at £500,000. On the first payment of £125,000, he will pay nothing; then on the next £125,000, he will pay 2% and 5% on the remaining £250,000. Hence, Whenever anyone plans to sell homes, buildings, land, securities or plans to hand over the property to someone else, a stamp tax will be labeled on the legal transactions and documentations.
Significance of Stamp Tax
The benefits that stamp tax has on properties can't be underrated. Below are some of the fundamentals that come with having stamp tax on documents.
- It gives legal protection and security over real estate properties and documents.
- It helps your property to be under the watch of the state's legal system.
- If any case arises in the future over the property, you will be able to present it as legal evidence.
- It is another source of revenue generation for the government to carry out projects and programs for development.
History of Stamp Tax
The first place that witnessed the use of stamp tax was Venice in 1604, followed by Spain, Netherlands, France, Denmark, Prussia, England, etc. In America, it came into effect in 1765 when the British Parliament passed the Stamp Act. It came with the imposition on the American colonists who they made to pay tax on printed papers such as newspapers, licenses, ship's paper, all legal documents, and every printed paper with no exemption. The generated fund from the stamp tax applied to the bills of positioning troops in America, and it covered the incurred debts of Britain during the years of war.
Stamp Tax vs. Duty Land Tax
Stamp duty land tax and stamp tax are related to each other but with some slight differences.
Stamp duty land tax pays or imposes on acquiring land and properties valued over a certain threshold. The rates paid depends on the type of land or property acquired. This type of tax applies to those living in England and Ireland.
On the other hand, a stamp tax is that which the government imposes on single documents or property acquired, which is not limited to real estate but covers any form of legal document that is to be sold or handed over to another.