Buy-to-let investors out-compete first-time buyers in the housing market thanks in part to generous tax treatment, according to an Intergenerational Foundation report. The think-tank also argued landlords are exploiting Capital Gains Tax loopholes.

Describing such tax advantages as “integral” to buy-to-let landlords’ business models, the report said: “Without these tax advantages, less capital would probably be allocated towards the BTL sector as a result.

“This would reduce the unfair competition that currently exists between older landlords and younger first-time buyers within Britain’s extremely tight housing market.”

The report echoed previous arguments that buy-to-let investors are attracting mortgage lending away from first-time buyers, whom they are also able to outbid in the property market.

Buy-to-let investors claimed £5.3bn in mortgage interest relief and other financial costs in the 2010-11 tax year, and £13bn in tax relief overall. They are also able deduct 10% of their net rental income per property each year in a “wear and tear allowance” designed to maintain the property.

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However, the English Housing Survey 2011-12 found more than a third of privately rented dwellings failed to meet minimum standards on housing quality.

While landlords are eligible for Capital Gains Tax if they sell their rental property, the Intergenerational Foundation found widespread advice on how to avoid this. Strategies included living in the property for a short time before selling it, or getting a partner to claim letting relief and thus reduce the profit subject to tax.

As well as reducing the ability of landlords to deduct their mortgage interest against tax, the think-tank proposes the government should deduct Capital Gains Tax at source during property transactions and build more housing.

However National Landlords Association chief executive Richard Lambert said landlords were an easy target:

“Intergenerational unfairness in the housing market is the result of the shortage of new homes being built and the lack of available, affordable finance, as much as anything.

“The NLA has argued for many years that there is a strong case for the rationalisation of the tax treatment of private landlords, so that renting property can be classified and treated as a business.

“I’ve yet to meet a landlord who thinks they are fairly taxed, never mind that the system might be slanted in their favour. The inconsistent treatment of renting within the tax system suggests that to landlords that the Treasury would rather to have its cake and eat it, if it means more money to the Exchequer.”