But-to-let landlords are adapting to ongoing restrictions to tax relief on buy-to-let mortgage interest, with almost half of all landlords having already changed their investment plans based on recent tax changes.

Landlords consider changes to tax relief as the biggest influence on their investment strategy, with 25% ranking it as their primary concern – above changes to capital gains tax and increased stamp duty, according to new research from Simple, the landlord insurance provider.

Taking into account all landlords’ concerns, including periods of unoccupancy – 12% – and tenant damage (10%), tax relief was the joint highest influence at 18%, alongside government legislation.

Despite this less than 10% of all landlords intend to reduce the size of their portfolios as a result of the revised tax regime. Some 4.4% of those owning at least two properties actually intend to invest, and almost two thirds – 63% – of this group said the changes had no effect on their plans.

The National Landlords Association estimates that the initial loss in tax relief this year alone would push over 440,000 lower-rate taxpayers, around 22% of the market, into a higher tax bracket. In total, it is estimated that 8.2 million people will be effected in England alone by the changes.

Many buy-to-let landlords will start to see firsthand the impact that the phased reduction of tax relief on mortgage payments, which came into play in April, is having on their income when they file their 2017 tax returns, as this will be the first to detail the impact of new rules forcing many of them to pay more tax.

Landlords can currently deduct 75% of mortgage interest payments against rental income, but this relief will fall to 50% in April 2018, then by a further 25% in 2019 before being eliminated the following year. It will be replaced by a tax credit of 20%, which some landlords may find is insufficient to offset the loss.

Alex Huntley, head of operations at Simple, said: “We know that landlords are adapting to the changes in the market, and are willing to embrace the challenges and find opportunities to develop more profitable and sustainable portfolios.

“Our research found that over one in three landlords [38%] owning at least two properties would consider forming a limited company, trust, limited liability partnership or a combination of these to lessen the impact of the tax reforms.

“There is no one solution or route, and landlords need to get expert advice tailored to their individual circumstances. But it’s heartening to see the majority of landlords remaining undeterred, and thinking about how to change with the market.”

It is a perspective backed by Tony Gimple, of Less Tax for Landlords, who added: “Rather than incorporating in what we often see as a knee-jerk reaction to Section 24 – take the time to fully understand the best legal structure for your portfolio given your personal situation.”

Simple has provided the following tips on how to deal with Section 24:

+ One possibility could be the creation a limited company, which is exempt from Section 24. However, landlords should take time to consider their options, and should bear in mind that transferring properties to a limited company is likely to incur stamp duty and capital gains tax – as well as remortgage fees and early repayment penalties from lenders. And then in addition to paying corporation tax on profits, landlords will be taxed when they withdraw money from the company.

+ Investing in a commercial property is another means of avoiding section 24, so diversifying the portfolio as always remains a good option.

+ Forming a company trust or changing to a limited liability partnership to include a spouse or partner who occupies a lower tax bracket are other ways to reduce your potential tax burden and in some cases, such as with a limited liability partnership hybrid structure, eliminate some taxes altogether while improving financing options.

+ Other avenues include offsetting the additional tax by remortgaging or shrinking your portfolio, or increasing rent while ensuring you avoid moving into a lower tax bracket. Options here can also include increasing pension contributions or charitable donations.

+ With stricter requirements in place from the PRA, it is more crucial now than ever to develop a coherent business plan that will allow you to maintain optimum cash flow and secure additional lending, should it be required.