Exchequer to take £40bn hit from slump in markets

THE Exchequer will suffer a blow of almost £40bn from the slump in stock and property markets, slashing the amount raised from a variety of taxes, the budgetary watchdog has warned.

Officials expect to raise substantially less from inheritance, capital gains and property transaction taxes over the coming years as the falling valuation of investments squeezes receipts.

The money raised from capital gains tax, stamp duty and inheritance tax will be higher this year but then fall by an average of £9.3bn, or 21pc, a year from 2023-24, according to forecasts for the Office for Budget Responsibility.

From 2023-24 to 2026-27, it expects the taxman to take £15bn less in capital gains tax, almost £3bn less in inheritance tax and £19bn less from property transaction taxes than it predicted in March. Combined, it will mean £37bn less in receipts over four years than initially expected.

“This reflects the downturn in the property market due to higher mortgage rates, as well as a weaker outlook for equity prices,” the OBR said.

Revenues from the taxes would be hit by the 9pc plunge in house prices predicted by the watchdog as soaring mortgage costs cool the market. The FTSE All-share index of British stocks has dropped by 5pc this year, reducing the amount raised by taxes on shares.

Receipts from property transactions will also be suppressed by the now temporary increase in the threshold at which homebuyers pay stamp duty. The tax break, which is one of the few measures to survive from the mini-budget, will be kept until March 31 2025.

Reduced forecast revenues from capital gains and inheritance taxes come despite the cutting or freezing of allowances to boost receipts. Experts have warned that the cut in the threshold for capital gains tax relief from £12,300 to £6,000 in April and £3,000 the following year will spark a fire sale of investments.

Jamie Mathieson of JMW Solicitors said: “In an already challenging economic landscape for landlords, this huge cut in the annual CGT allowance could result in a fire sale of second homes before April.

“Taxpayers concerned about these changes are likely to consider timings of gifts or sales to make the most of their allowances or to consider alternative ownership structures.”