George Osborne has said that 98% of homeowners in England and Wales will benefit from the reform.
Only people who buy homes worth more than £937,000 will pay more in tax following these changes.
Stamp duty operating up until yesterday throughout the UK charged successively higher rates on the entire purchase price of a property. This structure meant significant leaps in stamp duty when property price exceeded next threshold, even if only by £1.
For example, someone buying a home for £250,000 would have paid £2,500, or 1%, in stamp duty. But if the price was £1 more, they would pay an extra £5,000, as they then pay 3% on the whole purchase price.
From midnight on 3rd December, the new rates of stamp duty now only apply to the amount of the purchase price that falls within the particular duty band, making it more like income tax.
In other words, someone buying a house for £200,000 will pay nothing on the first £125,000, and then 2% of the next £75,000, giving them a bill of £1500. Previously they would have paid 1% on the total purchase price, giving them a bill of £2,000. Thus although the percentage rates appear higher in some cases, the overall charge will mostly be lower.
The new rates:
- Up to £125,000 : 0%
- £125,001 to £250,000 : 2%
- £250,001 to £925,000 : 5%
- £925,001 to £1.5m : 10%
- Above £1.5m : 12%
On average, someone buying a home in England and Wales will now pay £4,500 less in stamp duty.