Stamp duty to undergo massive overhaul: Autumn Statement 2014

The existing "cliffhanger" stamp duty system in the UK is to undergo a total revamp from tomorrow, with the winners generally being those buying homes under £1m and the losers those who buy pricier properties. (See our Stamp duty calculator to find out how much you could pay).

Here are the key details:

• At present, once you go over a threshold - at which point the rate charged rises - you pay tax on the whole purchase price at the higher rate. On a £260,000 home, you pay 3% on the whole price, so £7,800. That's even though the rate from £125,001 to £250,000 is 1%, and only climbs to 3% at £250,001.

• The new system will work like income tax, where you get a tax-free allowance, and then pay a different rate of tax for each portion of the price. There's no tax up to £125,000, it's 2% from £125,001 to £250,000, 5% from £250,001 to £925,000 and so on (full table below). The same £260,000 property will cost £3,000 in stamp duty.

• Anyone who has exchanged contracts (concluded missives in Scotland) on a purchase by 11.59pm tonight but not yet completed the purchase will have a choice whether to pay under the new or old system. If you have completed but have not yet filed your stamp duty return, you pay stamp duty under the existing rules.

• Stamp duty land tax is a lump-sum tax anyone buying a property or land has to pay (see our Stamp Duty guide for more).

Martin Lewis, MoneySavingExpert.com creator, says: "Scrapping the UK's most unfair tax is something few can disagree with. The market distortion caused due to the cliffhanger taxes has always been wrong, and it's good to see the Chancellor following what has already been announced in Scotland by scrapping it. 

"The great difficultly was trying to mimic similarly proportioned charges under the new system and a reasonable job has been done of that with the exception of million pound plus houses.

"I suspect the main reason for the change was to take on Labour with vastly increased rates for 'mansion tax' properties. While the political arguments will rage both ways over whether it's fair to charge those in big homes such high rates – certainly doing it via a one-off stamp duty rather than by an annual tax – is a fairer system. 

"The key point is it is done at the point of transaction so people can factor it into their purchasing decision, rather than a retrospective tax as the mansion tax would've been for many."

Stamp duty compared

Here is a table showing how the tax change affects you based on your property price:

What you'll pay: old and new stamp duty

And here's a graph outlining the difference in what you'll pay under the two stamp duty systems:

Here are the actual new and old stamp duty rates and thresholds.

New stamp duty rates from tomorrow

Current stamp duty rates

What's happening in Scotland?

The new stamp duty system announced today will apply across the UK. However from 1 April 2015 this will likely be changed in Scotland to the rates below (though they are still proposals), but with the same principle that you will be charged tax at a different rate for each portion of the price.

Proposed stamp duty rates - Scotland

For details of how this compares to the English system, see the Scotland scraps 'slab' stamp duty system in favour of proportional rates MSE News story.

Additional reporting by Helen Saxon.