While the reforms have been cheered by many as they make the process of house-buying more affordable for 98 percent of buyers, according to Osborne, those in the high-end property market will be hit by a higher tax rate that luxury agents call a "disaster."
The new rates mean that buyers pay no tax on properties up to £125,000 in value, then 2 percent on houses worth up to £250,000 and 5 percent up to £925,000. Homes worth up to £1.5 million, however, are now subject to a stamp duty of 10 percent and there is now a 12 percent on any property worth more than that. The changes came into effect at midnight on Wednesday.
"A £5 million pound house will see its stamp duty rise from £350,000 to £514,000 – but of course, this is a charge that is only paid once, when the property is bought," Chancellor Osborne told U.K. members of parliament Wednesday.
Crucially, the reforms could mean that a proposed "mansion tax" -- an annual levy on properties worth over £2 million -- proposed by the opposition Labour Party, could be shelved. That proposal provoked concerns among luxury property specialists angry reactions from high-profile personalities with even Angelina Jolie commenting on the tax.
Nonetheless, luxury property estate agents say the changes could still undermine and even destroy the U.K.'s high-end property market.
"Twelve percent stamp duty on residential properties priced over £1.5 million is a disaster for prime properties sales, but a great help to the mass market. The new stamp duty…threatens high end sales volumes. So there is no 'mansion tax,' but this new stamp duty could harm prime market," Alex Newall, managing director at Hanover Private Office, which manages assets such as luxury property for high net worth individuals.
"Nowhere will this hit harder than in Prime Central London and the South-East, where the majority of super prime transactions occur. The volume of sales are already down (in this region)," Newall said with prime areas such as Notting Hill seeing a decline of 48 percent in transaction volumes over the last 12 months.
The new higher tax rates were an "extraordinary hike" and were politically motivated as the governing Conservative party seek to undermine the opposition ahead of the general election in May 2015, according to one Chelsea based estate agent, Ed Corry Reid.
"With the new rates coming into effect from midnight, we have already seen serious jitters on ongoing transactions over £1 million," Reid, the associate director of Aylesford International estate agency said in a note Thursday.
"This coupled with the election next year could easily see the London market stagnate until next autumn at least. It seems incredibly short-sighted to place such a large burden on a market in central London, which is already under a huge amount of pressure, and which already contributes a significant amount to the Treasury."
The reforms to stamp duty could be too little, too late for the cooling U.K. housing market that has seen vast rises – albeit regionally varied – in house prices but the rate of growth has slowed markedly since late summer, according to various house price indexes, both in the general and luxury end of the housing market.
The Halifax House Price index for November released Thursday morning showed a 0.7 percent rise in house prices in the three months to November, from the previous quarter (June to August) but showed that the quarterly rate of increase has now declined for four consecutive months.
- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt.