Britain’s rental market could shrink dramatically if the government pushes ahead with a capital gains tax (CGT) raid, research shows.

A new study reveals that one million rental homes could be sold in the next decade if CGT is increased.

Chancellor Rachel Reeves is reportedly considering aligning CGT with income taxes – a move that will spark an “exodus” of landlords, the report by Capital Economics warned.

CGT is paid on the profits a landlord makes from selling their property and is capped at 24%. But if this was increased in line with income taxes, higher earning landlords would be left paying out 45% of their profits to the taxman.

Capital Economics estimates the policy would mean 910,000 landlord owned homes would leave the market in the next 10 years.

It said 790,000 more properties that had been rented would be sold and there would be 120,000 fewer purchases.

Currently, a basic-rate taxpayer pays 10% CGT on assets and 18% on property, while a higher-rate taxpayer will pay 20% on assets and 24% on property.

Simon Gammon, managing partner at Knight Frank Finance, said an increase would see a wave of second homes and rental properties put up for sale ahead of any deadline.

Increasing tax on the profits of a property sale would be the latest in a series of punitive tax hikes landlords have faced in recent years.

The removal of mortgage interest relief, scrapping of the 10% wear and tear allowance and introduction of the 3% stamp duty surcharge have eaten into profits, deterring many people from investing in the PRS.