Led by barrister Cherie Blair, wife of former Labour Prime Minister Tony Blair, the group was protesting about the controversial Section 24 of the second 2015 Finance Act.
The clause defines how private landlords paying higher rate tax will lose much of their tax relief on mortgage interest payments – but holiday lets and corporate landlords are unaffected.
Currently, individual landlords can offset buy to let mortgage interest at their marginal rate of income tax – which can be up to 45%.
The measure takes effect from April 6, 2017, and will be phased in by April 2020.
Landlords are worried that the loss of relief will eat into their profits and may see some landlords paying tax on revenue rather than profits.
Taking their case to the High Court in London, the group Axe the Tenant Tax argued the tax breached European free competition rules and contravened human rights laws aimed at giving them the right to freely enjoy their investments.
Justice Dingemans decided their case could not be argued and rejected the challenge.
His decision means the case cannot progress to appeal and any legal route is now closed to the protesters.
They have pledged to carry on their fight by lobbying MPs.
“We are outraged by the court’s decision. It has completely missed the opportunity to protect tenants, landlords and the housing market from the disastrous consequences of Section 24,” said Steve Bolton and Chris Cooper, who led the landlord campaign.
“Sadly it will be tenants who are hit hardest. We will also be encouraging all of our landlords to write to their tenants if they have to increase their rents or sell up, clearly explaining that it is this Conservative tax policy that has forced them into this situation”