Buy-to-let landlords will be left with little alternative but to raise rents or sell their properties due to the government’s punitive new tax regime, and it would appear that many are planning for the latter, new research shows.

The pending removal of landlords’ mortgage interest tax relief from next year does not just mean that landlords will no longer be able to deduct mortgage interest payments, but it will also force around 440,000 basic-rate tax payers into a higher tax bracket, according to the National Landlord Association (NLA).

The current rules that permit landlords to offset all of their mortgage interest against tax will, from April 2017, be phased out, restricting the amount of mortgage interest landlords can offset against tax on their property investments.

By April 2020, once they have been withdrawn altogether, the disastrous consequences of Section 24 will mean that it is likely that higher-rate tax payers will only receive 50% of the relief that they currently get, which will eat into their rental returns as they will be required to pay significantly more income tax.

The government’s plans to use landlords as scapegoats for problems faced by first-time buyers by tightening buy-to-let taxes could see up to 11% of landlords reduce the size of their property portfolios over the next 12 months, which would drastically reduce the supply of much needed private rented homes, the research from the Council of Mortgage Lenders (CML) has revealed.

With a significant number of private landlords planning to sell up as a direct result of government’s clampdown on the buy-to-let sector, policymakers need to be closely attuned to the “risk of unintended consequences” and “own goals”, according to Paul Smee, CML director general.

He said: “There is a certain irony in the researchers’ conclusions that the landlords who will be most affected by the government’s tax changes are those at the most professional end of the sector – those with large, leveraged portfolios.

“These landlords will be particularly hard hit by the changes in the treatment of mortgage interest and may choose to divest or moderate their property holdings.”

Portfolio size (units) of BTL landlords, 2004 and 2016

Source: CML BTL Survey 2004 & CML Landlord Survey 2016