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Transfer Tax

What is the description of transfer tax? It is simply an amount paid when an individual or entity is passing property to another individual or entity whereby the amount of tax paid depends entirely on the fair market value of the property in question. In simple legal terms, a transfer tax is the transaction fee imposed or charged when a property’s title is exchanging hands.

Normally, transfer tax is imposed where there is legal obligation for new registration of the property being transferred e.g. any transfer of shares, real estates or bonds. Transfer taxes maybe in the form of real estate transfer tax, stamp duty and charges for the official registration of a transfer.

Background of Transfer tax

Traditionally, in nearly all countries, a contract was required to have an affixed stamp to make a transfer legitimate. Initially, the levy for the stamp was either a percentage of the real value of the transaction or a fixed set amount. However, as times changed, the stamp was abolished in most countries but the duty remained. In the United Kingdom for example, stamp duty is charged on any purchase of securities and shares, when issuing bearer instruments or on particular partnership transactions.

Transactions involving land and securities, stamp duty land tax and stamp duty reserve tax are levied respectively. In the United States, transfer tax is often levied by either the local government or by the state. The term transfer tax in the US may also refer to Gift tax or Estate tax. So, on a broader logic, any transaction involving a tax on the transfer of a title is transfer tax, be it a capital gains tax, a gift tax, an estate tax or a sales tax on goods.

Real estate transfer tax for instance is a tax that can be imposed by a county, state or a municipality on the license of moving real property within the authority. On the whole, stamp duty aims at discouraging tentative purchases of assets by lessening the liquidity of the same.

Property Transfer Tax

People tend to mistake property transfer tax and property tax. Property transfer tax is paid when one purchases or acquires an interest on a particular property. The tax is payable when one is registering the changes to a certificate of the title. Note that a change includes any alterations made on the certificate, such as adding or deleting a name from the title. On the other side, property tax is paid annually for services one receives from the local government, even if no cash is exchanged between individuals or entities.

Be advised that in several jurisdictions, one maybe charged a notarial fee as some specific forms of the property may require a notary confirmation. The notarial fee will definitely add to the cost of the transfer transaction, but they are not part of the transfer tax.

You will find variations on transfer tax laws from one state, county or municipal to another. For instance, there are some states that exempt transfer tax for certain buyers, more often based on the income level of the buyers. This is to say that some states exempts transfer tax on say first time buyers from a certain percentage of the total amount, or equally excludes a portion of the total price of the property in question from taxation.

Be advised too that there maybe legal requirements to split the transfer tax between the parties involved in the transfer process, or there maybe a local custom to split which equally causes variations from one jurisdiction to another. It is therefore recommended that one checks with the jurisdiction where the property is located, on their transfer practices before money exchange hands.

Tags: cash, check, government, Income, law, Legal, liquidity, market, money, price, tax, Taxation

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