British Chancellor Gordon Brown's move to close yawning gaps in the stamp duty regime did not come as a surprise.

In the weeks leading up to the Budget announcement, Inland Revenue officials sounded increasingly loud alarms with each new tax avoidance scheme passed under their collective noses for review.

Nevertheless, confirmation of the industry's worst fears has been received as a serious blow by property pundits. Closure of the loopholes is part of a much wider government review of its arguably anachronistic stamp duty regime. In an age where deals are transacted in cyberspace, does a tax on paper documents really have much relevance?

Nevertheless, stamp duty is a nice little earner for the Exchequer and the chancellor shows no signs of relinquishing it.

Guy Napier, head of the City of London office at Knight Frank, the consultants, says closure of the loopholes hits particularly hard at places like the City, where almost all deals are above the £10 million sterling minimum threshold targeted by the Inland Revenue.

"I can't think of a deal for over £10 million that we have been involved with that hasn't had a tax-avoidance scheme," Mr Napier says.

Gordon Keenay, senior manager in the stamp taxes group at accountants KPMG, says that even the most elaborate tax avoidance schemes - the ones requiring the most expensive payments to accountants and lawyers - begin to make sense at transactions of £5 million and above.

Mr Napier says closure of the loopholes will affect debt-driven buyers particularly badly. They are mainly private investors who borrow 90 per cent or more of the transaction price. These investors can make relatively large profits on small investments. But those profits are in many instances wiped out by the 4 per cent stamp duty.

Data from the British Property Federation suggest that the Treasury is quite right to be concerned about loss of revenue through avoidance schemes. In the 2000-2001 tax year, revenue from stamp duty on commercial property deals above £1 million was £95.1 million, down from £124.1 million and €163.0 million in the two previous tax years.

Mr Napier argues that closure of tax loopholes marks a sharp reversal of government policy. "Until now, the Treasury has turned a blind eye to these schemes," he says.

The Treasury makes clear it views the growing use of schemes as posing a threat to the Exchequer and to the economy in general.

It is particularly concerned about special purpose vehicles: companies, usually domiciled offshore, created for the sole purpose of owning property and which retain the legal title while selling on the beneficial title. No new document on ownership needs to be registered and stamp duty is avoided.

The other main scheme involves the transfer of properties into a subsidiary, followed quickly by the sale of shares in that entity to a third party, attracting stamp duty on the share sale at 0.5 per cent, rather than the 4 per cent on property transactions.

In a 46-page consultation paper outlining plans for the reform of the 300-year-old stamp duty regime, Ruth Kelly, economic secretary, pulls no punches.

She writes: "Some companies are determined not to pay their full share of duty and structure property transactions in increasingly artificial ways to achieve that. We are determined to stop this abuse."

Treasury forecasts call for a £150m increase in tax revenues in the first year following the reforms and up to £450m thereafter.

Among the measures suggested to wipe out tax avoidance is a new requirement that all purchasers notify the Inland Revenue of the transactions as soon as any significant payment is made to satisfy a contractual obligation.

This will end the loophole through which properties transferred into a special purpose vehicle are subjected to a split title.

The government also proposes to review the process by which stamp duty is assessed on leases and suggests that leases shorter than three years may be exempted.

Liz Peace, director-general of the BPF, expresses some optimism that government will at least listen sympathetically to the industry's views.

Within minutes of the chancellor's speech on Wednesday, the BPF was called to Ms Kelly's office for a meeting.

Meanwhile, Mr Napier suggests that it is only a matter of time before well-paid lawyers and accountants devise new strategies for circumventing stamp duty.

The Inland Revenue does not refute the argument but suggests it will be kept busy. "We can only close them (tax loopholes) as fast as they open them up," it says.