Historic changes to one of the UK’s “most damaging” taxes have formed the centrepiece of George Osborne’s Autumn Statement.
The Chancellor said he was abolishing the “slab rate” of stamp duty – which means huge increases in tax when house values enter a new band.
In future, he said, the tax would apply progressively to the part of the property in each band, like income tax.
The new rates will see house-buyers pay 0% on the first £125,000 then 2% on the portion up to £250,000, 5% up to £925,000, 10% up to £1.5m and 12% on anything above that.
Mr Osborne said the changes – effective from midnight – would save £4,500 on the cost of an average home and cut stamp duty for 98% of house-buyers.
He said: “It is a fair, workable, lasting reform to the taxation of housing.”
The changes will cost the Treasury “nearly £400m” over the next four months, according to the Office for Budget Responsibility.
The Chancellor also announced a plan to cut the cost of air travel for millions of families by abolishing air passenger duty for children under the age of 16 over the next two years.
He also pledged to freeze fuel duty.
Mr Osborne said some death taxes would be abolished – allowing savers to pass on pensions and ISAs to loved-ones tax fee.
And he promised to “revolutionise” support for post-graduate students with the introduction of government-backed student loans of up to £10,000.
The Chancellor used the statement to trumpet the Conservative-led Government’s economic credentials, telling Parliament: “Our long-term economic plan is working.”
He said the Office for Budget Responsibility (OBR) had revised up the British economy’s growth forecast to 3% and told MPs the UK was now enjoying “more balanced” growth.
On the controversial issue of the deficit, Mr Osborne was cheered by his own MPs and jeered by the opposition as he revealed better-than-expected figures.
He said the OBR’s forecasts show borrowing is falling and would continue to fall until a budget surplus is achieved in 2018/19.
Labour Shadow Chancellor Ed Balls said the Chancellor’s policies had left workers £1,600-a-year worse off.
He said: “For working people there is a cost-of-living crisis and that squeeze on living standards is not only hitting family budgets – it has also led to a shortfall in tax revenues.”
He accused Mr Osborne of missing his targets on clearing the deficit and reducing the national debt, but not telling MPs by how much.
The Chancellor warned that in the coming years there would have to be “very substantial” spending cuts.
He vowed to claw back money from those who pay “paid too little” tax – including multinational firms, who will face a 25% tax on profits generated in the UK, which are then shifted overseas.
He claimed the tax would raise £1bn over the next five years, while changes to tax rules for banks would raise another £4bn over the same period.
He said the Government’s policies would mean the richest 20% paying more tax than the remaining 80% put together – which he claimed proved the Tory slogan: “We’re all in this together.”
There was a promise of help for small businesses – with a doubling of Small Business Rate Relief and a review of the structure of business rates.
Many of the measures announced had been trailed ahead of the speech – such as a plan to repay the national debt incurred to fight the First World War, road building schemes, flood defences and investment in the NHS.