The move raises the level at which people in England and Northern Ireland start paying the property tax from £125,000 to £500,000. First-time buyers started paying stamp duty above £300,000.
The new rules will come into effect immediately and will last until March 31 2020, in an attempt to give the housing market a shot in the arm following its seven-week hiatus under coronavirus lockdown.
It is hoped that it will encourage prospective buyers who might otherwise delay a move until next year to buy sooner to take advantage of the tax break.
The stamp duty holiday is part of a raft of measures designed to help younger people, whose finances have been most severely impacted by the pandemic.
Under the previous rules, someone buying a £500,000 property would pay £15,000 stamp duty. With the threshold raised, anyone buying a property for less than half a million will pay no transaction tax, while those buying property above the threshold will save £15,000 on their total tax bill.
With an average purchase price of £232,000, this means most UK buyers will not have to pay any stamp duty at all under the Chancellor’s plan, saving £2,140 on the average home.
In London, where house prices are the highest in the country, 57 per cent of buyers will pay no stamp duty under the new rules, with the vast majority of those now exempt in the outer London boroughs.
Announcing the move in Parliament, the Chancellor said: “One of the most important sectors for job creation is housing. The construction sector adds £39 billion a year to the UK economy. Housebuilding alone supports nearly three quarters of a million jobs with millions more relying on the availability of housing to find work.
"But property transactions fell by 50 per cent in May, house prices have fallen for the first time in eight years and uncertainty abounds in the market, a market we need to be thriving.
"We need people to feeling confident, confident to buy, sell, move and improve that will drive growth, that will create jobs. So, to catalyse the market and boost confidence I have decided today to cut stamp duty.
"The average bill will fall by £4,500 and nearly nine out of 10 people buying a home this year will pay no stamp duty at all.”
It is hoped the reduction in moving costs will also encourage existing home owners to put their homes on the market, increasing the supply of homes available to buy in a market that has long been dogged by chronic undersupply of larger homes.
“A stamp duty holiday or reduction in the levy would encourage second steppers and downsizers to put their homes up for sale and move on, freeing up housing stock and giving first-time buyers more opportunities to get on the ladder,” said Lawrence Bowles, an analyst at Savills.