Buyers beware? The hidden costs of stamp duty reform

It’s been described as is “one of the worst designed and most damaging of all taxes” and, at the stroke of midnight, stamp duty becomes rather more streamlined.

Until now, the tax has been levied on house purchases in a series of "slabs". For example, a house costing £250,000 would be taxed at one per cent – or £2,500. But a house costing only £1 more would be taxed at three per cent – an extra £5,000.

As a result, the market is distorted as house prices bunch below the thresholds. At the extreme, a £1 increase in sale price could trigger an additional £40,000 tax bill.

Tonight that will go and a sliding scale is applied only to the value above each threshold.

• How the stamp duty reforms will affect property buyers

The chancellor says this means all but the top two per cent of house sales will result in the buyer paying less tax - that means anyone buying a house for less than £937,000. The savings can be quite significant. The buyer of an average house will save £4,500.

What’s not to like?

Well, economists love using “the law of unintended consequences” – looking for surprising side effects to policy.

Instead of making house-buying easier, lowering stamp duty may actually inflate house prices by encouraging people currently renting into the market and pushing up demand. The Treasury itself estimates a one per cent drop in stamp duty would push prices up by 1.4 per cent.

So what seemed like a lifeline for buyers may, in the end, make it a touch harder.

Economics editor Richard Edgar looks at the numbers behind today's Autumn statement:

• What does the Autumn Statement mean for you?