It raises the 1% duty threshold from £125,000 and will save home-buyers up to £1,750 - at an estimated cost to the Government of £600 million. An estimated half a million purchasers are expected to benefit.
The Treasury said: "The Chancellor of the Exchequer has announced that stamp duty land tax will not apply to purchases of residential property of £175,000 or less.
"This will provide an exemption from stamp duty land tax for land transactions consisting entirely of residential property where the chargeable consideration is not more than £175,000.
"This relief will apply to transactions with an effective date on or after 3rd September and before 3rd September 2009."
Around half of the 90,000 home purchases completed each month are on properties worth £175,000 or less, but deals below £125,000 are already exempt from stamp duty.
The average price of a home in the UK was just under £165,000 in August, according to the Nationwide Monthly House Price Index.
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