George Osborne has said stamp duty will be cut for 98% of homebuyers in his Autumn Statement to the Commons.
The chancellor said that from midnight the current system, where the amount owed jumps at certain price levels, would be replaced by a graduated rate, working in a similar way to income tax.
He admitted borrowing would be higher than forecast but claimed the UK would be “into the black” by 2019/20.
Labour said his deficit reduction targets were “all in tatters”.
BBC political editor Nick Robinson said the headline announcements were “real electioneering” by the Conservative chancellor.
The new rates will apply in Scotland until 1 April next year, when the Land and Buildings Transaction Tax replaces stamp duty there.
The Autumn Statement – which was called the pre-Budget report under the previous Labour government – is a chance to flag future tax and spending plans as well as set out the state of the nation’s finances.
In other measures:
A 25% “diverted profits” tax – often called a “Google tax” – would be aimed at multinational companies
Air Passenger Duty for children under 12 would be abolished next year, and under-16s from the following year
Bank profits which can be offset by losses for tax purposes would be limited to 50%
An extra £2bn would be put into health services across the UK
VAT for hospices and air ambulances would be refunded
Fuel duty would be frozen
The UK would play a “lead role” in a European mission to Mars
Investment in businesses, academies, research and culture to create a “northern powerhouse” in England
There would be a review of business rates to help High Street stores take on internet firms
People will be able to pass on their tax-free ISA allowances to spouses when they die
There would be a new £90,000 charge for people who are non-domiciled in the UK for tax purposes but have lived there for 17 of the past 20 years
The higher rate income tax threshold would rise to £42,385 next year
In its report accompanying the statement, the Office for Budget Responsibility (OBR) said the government’s overall plan was to reduce public spending from £5,650 per head in 2009-10 to £3,880 in 2019-20.
Some 60% of this reduction was still to come in the next parliament, it said.
OBR chairman Robert Chote predicted a “very sharp squeeze” on public service spending in the next parliament based on the figures available.
The new stamp duty rates at different band levels will only apply to the part of the property price that falls within that band, so there will no longer be a huge jump in stamp duty, for instance, on a property costing £500,001.
Under the new rules, no tax will be paid on the first £125,000 of a property, followed by 2% on the portion up to £250,000, 5% on the portion between £250,000 and £925,000, 10% on the next bit up to £1.5 million and 12% on everything over that.
People currently in the process of purchasing a home could choose which regime to operate under, Mr Osborne said.
The Treasury said someone buying a property at the average family home price of £275,000 would save £4,500, while a £2.1m purchase would carry £18,750 more stamp duty compared with the old system.
Mr Chote said the reform could put up house prices in some areas, predicting prices would rise where the tax had fallen, and fall where it had risen.
Mr Osborne said the tax cut, which is UK-wide until April when stamp duty is devolved to Scotland, was worth £800m a year.