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If you’re buying a property in any part of the world, the first tax you’ll probably hear about is stamp duty.
It’s important to learn about stamp duty, the rate, the thresholds, how to pay it, when to pay, and all the legalities involved.
In fact: in most cases, stamp duty is the highest amount of tax you pay on the purchase of a property.
Other than a few exceptions, like when buying property in New Zealand, and other countries that are actively looking for foreign investors to invest in the real estate, stamp duty is a mandatory tax when buying property.
What is stamp duty?
Stamp duty is a tax that is levied on legal documents, mainly involved in the transfer of property.
In countries where stamp duty is part of the legal process of buying and selling a property, the property documents must have a physical stamp on them to be recognized.
For most countries, it’s an important source of revenue, the rate ranges from 0.5% up to as much as 15% (in Singapore and Hong Kong, foreigners are subject to an additional Buyer’s Stamp Duty
If you’re buying property in a country where stamp duty or stamp tax is enforced, make sure to check if your documents have a physical stamp mentioning the exact amount that you paid as tax.
In some countries where the transfer of property is computerized, the physical stamp is no longer required. Locals and foreigners are usually obliged to pay stamp duty, in most countries, the rates are same for both.
The only investors exempted from stamp duty, in some parts of the world, are first-time buyers.
Why? Because governments want to make it easier for first-timers to buy property.
In countries like Australia, some states including Victoria, impose a higher rate of stamp duty on foreigners, to keep prices affordable for local buyers.
On the other hand, countries like New Zealand have no stamp duty in order to attract more foreigners to buy real estate in the country.
Why do I need to pay stamp duty?
Stamp duty was introduced long time ago as a fee when transferring legal documents, related to property purchases (for example).
The tax is mandatory in most parts of the world and during the legal process when transferring property.
Some countries include: When buying property in Australia, UK, Singapore, except in New Zealand.
After it was initiated by the United Kingdom in 1765, when the Stamp Act of the British Parliament was passed, it became a mandatory tax in almost all Commonwealth countries, while other countries has followed the UK in the last centuries.
In the United States, stamp duty is known as a “transfer fee”, which is customary in most of the states, but not in all.
How to calculate stamp duty
The stamp duty is calculated based on the selling price or market value of the property and paid by buyers in most cases.
It’s not only a good source of income for governments but also helps to prevent speculation on home prices.
When is stamp duty applied then?
Well, it’s not only applied when buying houses or apartments but also paid for patents, securities, land, copyrights, and homes.
In countries where the stamp duty is enforced, the transfer documents of property are considered incomplete unless the documents have a stamp on them showing the amount of tax paid.
How do I pay the stamp duty?
In most countries, you have to pay the stamp duty immediately after the completion of transferring documents, that are provided by the seller.
If you’re working with a solicitor or conveyancer, he will file the return and pay the tax on your behalf.
Although you can often pay stamp duty online, if you’re buying a home in a foreign country, you often need help from a local Solicitor or Conveyancer.
When do I need to pay the stamp duty?
In most countries, you need to pay the stamp duty during a time period of 30 – 90 days, after the transfer of documents. If you don’t comply, you might face heavy fines.
In the worst case, the transfer process of the legal documents can stop.
In the UK, you have to pay the stamp duty within 30 days of receiving the contract or transfer documents from the seller, just giving you an example.
What is a stamp duty threshold?
The stamp duty threshold is the minimum amount that makes you eligible to pay stamp duty.
The thresholds differ between countries, while some countries like Malaysia has no stamp duty threshold at all.
If you’re buying property in the UK, the threshold for residential property is 125,000 pounds. This means you don’t have to pay stamp duty if the property you’re buying is worth less than GBP 125,000.
So: if you’re looking to save money and minimize the stamp duty, make sure to buy a property that is within the threshold.
In some countries, the rate increases progressively, depending on the property value. The higher the price, the higher the rate.
When paying stamp duty in Thailand and Vietnam, there’s only a standard rate, irrespective of the price of the property.
Stamp duty in the Asia Pacific Region
As mentioned, each country has different regulations, rates, and thresholds for stamp duty.
Below you’ll find rates in some of the most popular countries.
In Thailand, there are two types of taxes when transferring property: one is stamp duty and the other is a Specific Business Tax (SBT), sometimes added to the transfer fees of 2%.
Although stamp duty is just 0.5% of the total value of the property, if you have paid SBT which is 3.3% of the total property value, the stamp duty is exempted.
Importantly: if you’ve paid stamp duty, the documents must contain a physical stamp.
The documents must contain a physical stamp printed on transfer documents for the transferred documents to be valid.
In Malaysia, stamp duty is levied when transferring titles of buildings and lands. All the documents must be stamped within 30 days after completion of the transfers.
The stamp duty increases progressively up to 3%, for the first RM 100,000 you have to pay 1% of the price as stamp duty. For the next RM 500,000, the stamp duty is 2% and for the onward value, it is 3%.
Though, the Prime Minister of Malaysia exempted the stamp duty for first-time buyers temporarily (until December 2018).
The exemption is valid for properties priced up to RM 300,000.
Stamp duty is also applied in Cambodia. The rate is set to 4% of the total property value.
The tax must be paid within three months of the transfer of property, the transfer documents must contain a physical stamp to prove that the tax is paid.
In Vietnam, the stamp duty is 0.5% of the total value of the property, and mandatory to legalize the process of transfer of property.
Also in Vietnam, the transfer documents must contain a physical stamp.
In Australia, stamp duty is not levied by the federal government, but by different states. Keep in mind that the rate differs between states.
Although the rates change between the 8 states, the maximum rate applied is 5.5%.
In some states, there are higher rates for foreign buyers to make residential properties more affordable to local buyers.
Stamp duty has been exempted in New Zealand, in fact, taxes are low in general.
So, even if it’s become generally harder to buy property in New Zealand as a foreigner, there’s currently no stamp duty if you’re buying a property.
Stamp duty in the United Kingdom
Even if stamp duty is one of the oldest taxes in the UK, it’s been modified in relation to the changing market throughout history.
The latest changes were made in 2003 when the “Stamp Duty Land Tax”, also known as SDLT, was imposed.
The new transfer tax derived from the traditional stamp duty and was enforced on all property and land transactions.
So: if you’re buying a residential property worth more than GBP 125,000, you have to pay a Stamp Duty Land Tax which is calculated according to the value and other factors of the property.
For non-residential properties, the threshold is GBP 150,000.
Some factors that affect the amount of payable stamp duty are, for example:
a. The type of ownership (freehold or leasehold),
b. If it’s residential or non-residential
c. Date of the transaction
d. If you’re buying property as an individual or in a civil partnership
e. If you already own a property in the UK
f. Start and end date of the lease
g. The premium payable.
In 2010, the transfer tax was changed again and increased from 4% tax to 5%, on all residential properties worth more than GBP 1 million.
The new legislation was approved in 2015 in which second-time buyers were forced to pay 3% SDLT in addition to normal rates.
The same SDLT conditions and rates are applicable throughout England, Northern Ireland, and Wales but not applicable in Scotland. In Scotland, you have to pay Land and Buildings Transaction Tax instead of SDLT.
Listed are the current rates of SDLT in the UK for first time buyers.
For residential properties up to GBP 125,000 = 0%.
For residential properties between GBP 125,001 – 250,000 = 2%.
For residential properties between 250,001 pounds and 925,000 pounds = 5%.
For residential properties between 925,001 pounds and 1,500,000 pounds = 10%.
For residential properties over 1,500,000 pounds = 12%.
Stamp duty in the United States
Stamp duty is mostly known as ‘transfer tax’ in the United States.
Instead of the federal government, stamp duty is imposed and collected by states. So: for each state, their rates vary and different conditions apply.
The name itself for the tax also differs between states. For example, it can be called an intangible tax, mortgage tax, or a documentary stamp tax, based on the state you’re buying property in.
In New York, it’s called “Closing Costs”. The rate is about 1.5% to 2% of the property price and 5% to 6% of the loan amount if there is financing.
Even if the rates vary according to the state laws, the amount is significantly lower than the stamp duties in countries like UK and Australia.
In Colorado, the transfer tax is only 0.1% of the total value of the property, while in the city of Pittsburgh, the rate is 4% which is the highest in the country.
In some states and cities, like in Washington, the rate is split between buyers and sellers.
Stamp duty is one of the oldest taxes in the world and will also be one of the highest taxes you pay when buying property.
In some countries, stamp duty is not levied at all, while in other countries, like Singapore and Hong Kong, an additional Buyer’s Stamp Duty of 15% is added to foreigners.
As you can see, the stamp duty varies much between different countries and it’s important that you study well in advance, understanding the costs involved when buying property.