EXPERTS have warned that proposed tax increases could force landlords into a “fire sale” of properties that will lead to rising rents and fewer homes to let.

The new coalition Government plans to hike capital gains tax from its current level of 18 per cent to a rate in line with income tax – up to 50 per cent for some landlords.

Lettings agents in Oxford say that has already led to landlords rushing to market their properties even before the date of the new tax rise has been announced.

Dan Channer, commercial director of lettings agent Finders Keepers, which has eight offices across the county, said: “This could have a devastating effect on the rental market.

“Not only would a fire sale of properties lead to a fall in property prices just as the industry regains its footing, tenants would also lose out since a 40-50 per cent level of capital gains tax will deter prospective residential investors from buying.

“With fewer rental properties available, rents would inevitably rise and selection would be limited.”

Darren Hazell, owner of the Letting Centre in Headington, added: “We have already seen an increase in landlords wishing to sell their properties.

“We have had several discussions with tenants needing to move on as a result.

“For instance, we were contacted by Oxford City Council’s Home Choice Scheme, which helps tenants, about a family given notice to quit.

“Luckily we found them somewhere else fast, and they only had one night in a hotel, but this will not always be the case.”

The 40 per cent income tax rate starts at between £30,000-£40,000, depending on individual circumstances. The 50 per cent rate will kick in for £150,000+ earnings per year from April 2011.

Chris Mundy, tax expert at Oxford financial advisers Grant Thornton, said: “In the short-term it could affect the Oxfordshire property market as people jostle to sell before the increase, boosting the supply side.

“In the long-term it could spell the reverse.”

Lucian Cook, of Savills residential research, said: “Investors looking to rationalise or reorganise their property portfolio could avoid a hefty tax burden by disposing of their asset before April 2011.”