Home buyers will typically save thousands of pounds following the introduction of new Stamp Duty rules.
The Chancellor announced the changes to the system in his Autumn Statement on Tuesday.
He told the Commons: “Today I am announcing a complete reform of a tax that has been described as one of our worst-designed and most damaging of all taxes.”
It means huge savings for 98 per cent of people who pay the tax on buying a new home. For example, those buying a family home costing £275,000 will save £4,500 under the new system.
The old ‘slab’ system requires buyers to pay the tax at a single rate on the entire property price.
It will be replaced by the new Stamp Duty rules, where buyers will only pay the rate of tax on part of the property price within each tax band – in a similar way to how income tax works.
Under the old rules, a house costing £185,000 would require a buyer to pay 1 per cent tax on the full amount – a total of £1,850.
But under the new system, the same buyer would not pay any tax on the first £125,000 and 2 per cent on the remaining £60,000. It works out as £1,200 in tax and a saving of £650.
However, those buying a property for more than £937,500 will pay more due to the changes. Buyers can check how much they will have to pay via an online calculator.
The changes were welcomed by industry experts, who described them as resulting in a “much fairer system”.
Mark Harris, of mortgage brokers SPF Private Clients, said: “The long overdue reform of the antiquated slab system of Stamp Duty will result in a much fairer regime.”
And Richard Lambert, of the National Landlords Association, said: “We’ve argued for many years that a progressive system would offer a fairer and far less distorting means of taxing property purchases.”
Jeremy Blackburn, of the Royal Institution of Chartered Surveyors, said: “These changes reduce distortion and ensure those at the top end of the market contribute fairly, while those at the bottom will be given a fairer chance to get on the ladder, cutting out ‘dead zones’ in the market.”
The new rules are effective from yesterday (December 4 2014) - and more information is available via the HM Treasury website.