Landlord groups have called on the new Chancellor to introduce a capital gains tax exemption when a property is sold to sitting tenants.

The soon-to-be-merged Residential Landlords Association and National Landlords Association are urging Rishi Sunak to take immediate action to reverse the decline in supply of rental properties.

The groups say that landlords are selling more properties than they are buying, while many of those remaining in the sector are switching to short-term holiday lets as the popularity of Airbnb grows.

They warn that unless the government acts quickly tenants are likely to find it increasingly difficult to find suitable homes at a price they can afford. 

Research by Arla Propertymark suggests 470,000 properties could be lost to the long-term rental market as landlords switch to short-term lets.

The RLA and NLA want the chancellor to drop the 3 per cent stamp duty surcharge where landlords are adding to the net supply of new homes by developing new properties, bringing empty homes back into use or converting large properties into smaller and more affordable units.

The groups also calls for tax relief for landlords who invest in measures to improve the energy efficiency of a rented property or where they adapt properties to meet the needs of tenants with disabilities. 

RLA policy director David Smith says: “The tax system for rented housing is failing. 

“It encourages the provision of holiday homes over long-term properties to rent, it deters investment in new housing and provides no support to those wanting to make energy efficiency improvements.

“For the sake of those living in rented housing or who are looking for accommodation, ministers need to use the Budget to urgently change course to ensure that their tax policies are positively aligned with their wider housing objectives to encourage good landlords to provide long-term affordable housing.”

NLA director of policy and practice Chris Norris adds: “The tax system with which landlords must contend is no-longer fit for purpose. 

“HM Treasury has constructed a series of barriers to investment, which make running an efficient and successful lettings business borderline impossible.

“As he prepares his first Budget, we hope that the Chancellor will take the opportunity to use taxation to encourage investment in new and existing homes alike.”