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Coronavirus to cost the Treasury £5billion in lost stamp duty revenue

"Florene Narvaez" (2020-04-09)

The coronavirus outbreak could see the Treasury lose nearly £5billion in stamp duty revenue as the housing market grinds to a halt.

Home buyers and sellers were left in limbo last week after the Government ordered the public not to move house or exchange on contracts.

The move will see a huge hit to the Treasury's coffers as revenue from the tax levied on land and property sales falls by as much as 56 per cent, according to a report from estate agency Savills.

The firm predicts a drop in house sales from an estimated 1.06million properties to just 495,500, leading to a drop in receipts of between £3.47billion and £4.78billion, the Times reported.

 The outbreak could hit the Treasury's coffers as stamp duty revenue falls by up to 56 per cent

Savills' predictions are based on a model that sees GDP falling by 2.5 per cent this month followed by a rebound of 1.8 per cent later in the year.

In such a sharp economic crunch, plummeting home sale transaction numbers - as well as falling property prices - will slash the stamp duty revenue that the Treasury receives





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Mortgage lenders have pulled a third of all deals over the past three weeks, indicating banks could be concerned about a sharp drop in house prices in the near future.

Experts at Savills say house prices could fall by as much as 10 per cent. 

Lucian Cook, head of residential research at Savills, said: ‘We expect that prices in the mainstream market could fall between 5 and 10 per cent in the near term, albeit of a very low number of transactions.

‘Prices are likely to bounce back as confidence returns to the market, both from homebuyers and businesses. We're standing by our forecast of 15 per cent growth of 2024.

‘We expect transactional activity will drop off significantly over the coming months, particularly with Government advice being that bookstore movers should avoid moving home while emergency measures are in place.

‘However while these measures are in place demand for new housing is still growing and we do expect to see that pent up demand building for when those emergency measures are lifted and people can move again.'

 House prices could drop by as much as 10 per cent as transactions slow to a stop say experts

Cook added that Savills expects transaction levels to return to normal by the second quarter of next year.

Receipts for stamp duty land tax already fell by £1billion in the 2018/19 tax year, according to HM Revenue & Customs. The controversial tax has seen a number of changes in recent years.

It shifted from a slab system in late 2014, with a rate charged on the entire purchase price to a marginal one similar to income tax. This saw some cliff edges removed and those further down the scale pay less tax but those at the top end pay much more.

In 2016, former Chancellor George Osborne introduced an additional stamp duty surcharge on second homes in a bid to curb the booming buy-to-let market and give first-time buyers a further boost.

Then in 2017, the Government effectively abolished stamp duty for the majority of first-time buyers.