CGT and Private Residence Relief UK, Landlords Selling Former Homes and Letting Relief Changes

How Private Residence Relief Works, The Basic Calculation

PRR operates by exempting from CGT the proportion of a gain that relates to periods of qualifying occupation as your main residence: (a) Qualifying periods: the period during which the property was your only or main residence, plus the final 9 months of ownership (the 'deemed occupation' period) regardless of actual occupation; prior to April 2020 the final period was 18 months; (b) The PRR fraction: PRR = (qualifying occupation months + final 9 months) / total ownership months × total gain; (c) Full exemption: if you occupied the property as your main residence for the entire period of ownership (minus the final 9 months which are always exempt), the entire gain is exempt from CGT, no tax is payable; (d) Partial exemption: for landlords who lived in the property for part of the ownership and let it for the rest, only the proportion attributable to the qualifying occupation period and the final 9 months is exempt; the letting period is NOT exempt (lettings relief was abolished for most owners in April 2020); (e) Example: landlord owns property for 10 years (120 months); lived in it for 3 years (36 months); rented it for 7 years (84 months); gain £200,000; PRR exempt = (36 + 9) / 120 × £200,000 = 45/120 × £200,000 = £75,000 exempt; taxable gain = £125,000; less annual exempt amount; taxed at 18% or 24% (post-October 2024 rates); (f) Post-October 2024 CGT rates: 18% (basic rate band) and 24% (higher rate) for residential property gains; rate applicable depends on the taxpayer's income in the year of disposal.

• Final 9 months always exempt: the last 9 months of ownership count as qualifying occupation even if the property is let or empty, previously 18 months pre-April 2020
• Lettings relief abolished: from April 2020, lettings relief (previously up to £40,000 per owner) is only available if the landlord shared the property with the tenant at the same time
• PRR fraction: qualifying months (including final 9) ÷ total ownership months × gain = exempt amount
• Post-Oct 2024 CGT rates: 18% (basic rate) and 24% (higher rate) for UK residential property; higher rate applies where gains fall in the higher rate band after adding to income
• Disposal and payment: CGT on residential property must be reported and paid within 60 days of completion via HMRC's 'Report and pay CGT' service

What Counts as Your Main Residence?

The critical question in any PRR claim is whether the property was genuinely your 'only or main residence' during the claimed period: (a) Actual occupation: HMRC requires genuine occupation as a home, not merely a postal address or occasional visits; the taxpayer must have actually lived in the property with the quality of occupation one would expect of a home; Goodwin v Curtis [1998] confirmed that brief occupation of very short duration, without any real settled quality, does not qualify; (b) Degree of permanence: there must be some degree of continuity and an intention to treat the property as a settled home, Batey v Wakefield [1981]; however, short periods of actual occupation can qualify if the intention is genuine; (c) Only or main residence election: where a taxpayer has two or more residences, they can elect which is their main residence under TCGA 1992 s.222(5); the election must be made within 2 years of first having more than one residence; if no election is made, HMRC determines which is the main residence based on facts; (d) Election strategies: for landlords with a main home and investment property, an election can be made to nominate the investment property as the main residence for a brief period, crystallising the final 9 months' deemed occupation exemption; this is entirely lawful where genuine occupation occurs; (e) HMRC scrutiny: elections and short-period occupation claims attract HMRC scrutiny; the landlord should retain evidence of genuine occupation, utility bills, mail, GP registration, bank statements, council tax records, for the claimed period; (f) Spouses and civil partners: each owner claims PRR in respect of their own occupation; a couple can only have one main residence election at any one time per married couple/civil partnership.

• Genuine occupation required: brief, uncommitted occupation without the quality of a settled home does not satisfy the main residence test, Goodwin v Curtis
• Main residence election: with two or more homes, elect within 2 years of acquiring the second; late elections require HMRC agreement; the election can be changed going forward
• Election strategy: elect the investment property as main residence for a short period of genuine occupation to crystallise the final 9-month exemption on later sale
• Evidence: retain utility bills, mail, bank statements, GP registration, and council tax records for all periods of claimed occupation
• Spouses: only one main residence election per married couple, strategic allocation between spouses requires careful planning

Periods of Absence, Deemed Occupation Rules

Certain periods of absence from a main residence can be treated as periods of occupation for PRR purposes under TCGA 1992 s.223: (a) Any period of absence with actual occupation at the beginning AND end: any period of absence is treated as occupation if: the property was the taxpayer's main residence immediately before the period of absence; AND the taxpayer actually re-occupied the property after the absence; this rule protects landlords who let their main home for a period and then return; (b) The 'any reason' exemption: periods of absence for any reason are treated as occupation to the extent they total no more than 3 years over the entire ownership; (c) Employment abroad: any period of absence during which the taxpayer (and spouse) lived in job-related accommodation outside the UK is treated as occupation, no time limit; (d) UK employment: any period of absence during which the taxpayer's duties prevented occupation of their UK home is treated as occupation, up to 4 years; (e) The letting trap: if the property was let during the period of absence, the 'any reason' 3-year exemption still applies, provided the property was occupied as the main residence before AND after the letting period; if the property was never re-occupied after the letting, the absence exemption does NOT apply; (f) Combined with final 9 months: the 9-month final period is always exempt and does not reduce the absence exemption allowance.

• 3-year 'any reason' absence: up to 3 years of absence for any reason counts as occupation, provided there was actual occupation before and after
• Re-occupation essential: if the property was let and never re-occupied as the main residence, the absence exemption does NOT apply to the letting period
• Employment abroad: unlimited period of absence for overseas employment counts as occupation, must re-occupy afterwards to qualify
• Letting during absence: the property can be let during an exempt absence period, the rent is taxed but the gain attributable to that period may still qualify for PRR
• Final 9 months: always exempt and runs alongside the absence exemptions, not consumed by them

Lettings Relief After April 2020, Shared Occupation Only

Prior to 6 April 2020, lettings relief provided an additional exemption of up to £40,000 per owner (£80,000 per couple) for landlords who had let a property that was at some point their main residence. This was a highly valuable relief that substantially reduced CGT on former homes. From 6 April 2020, the Finance Act 2020 substantially restricted lettings relief: (a) New test: lettings relief is now only available where the landlord was in shared occupation of the property with the tenant at the same time, i.e. living in the same property as the letting; (b) Lodger arrangements: a landlord who lets a room to a lodger while occupying the rest of the property as their main residence qualifies for lettings relief on the gain attributable to the let room; (c) Entire property let: if the entire property was let (even if the landlord previously lived there), lettings relief is NOT available from April 2020, regardless of how long the landlord previously lived in the property; (d) Transitional: disposals before 6 April 2020 can still claim lettings relief under the old rules for the pre-April 2020 period; gains accruing before April 2020 may still benefit from old lettings relief where the property was let and is sold; (e) Rent-a-room relief: separately, the Rent-a-Room Scheme provides income tax relief of £7,500 per year on rental income from a lodger in your main home, this is an income tax relief, not a CGT relief; it does not affect the PRR/lettings relief CGT position.

• Post-April 2020: lettings relief only available if landlord shared the property with the tenant simultaneously, entire-property lettings no longer qualify
• Lodger arrangements still qualify: renting a room while living in the property gives CGT lettings relief on the lodger's gain proportion, up to £40,000
• Old lettings relief for pre-2020 periods: gains attributable to periods before 6 April 2020 can still benefit from the old rules where the property was let, seek advice on apportionment
• Rent-a-room: separate £7,500 income tax relief for lodger income; does not affect the CGT position
• Planning point: landlords considering selling a former home let after April 2020 should model the CGT position carefully, the PPR fraction plus 9 months may still give a significant exemption

Reporting and Paying CGT on Residential Property

Since 6 April 2020, UK residents who make a chargeable gain on UK residential property must report and pay the CGT within 60 days of the completion of the disposal: (a) Report and Pay CGT service: use HMRC's online service to report and pay within 60 days; the 60-day clock starts on the completion date, not exchange; if the return is not filed or CGT not paid within 60 days, HMRC can charge penalties (from £100 for up to 6 months' delay, escalating) and interest on unpaid tax; (b) Annual self-assessment: the disposal must also be reported on the annual self-assessment return for the tax year in which the disposal occurred; the CGT paid on the 60-day return is a payment on account against the final liability; if the final liability is different (e.g. because income for the year is higher or lower than assumed), a balancing payment or repayment arises; (c) Annual exempt amount: from 2024/25, the annual exempt amount is £3,000 (reduced from £6,000 in 2023/24 and £12,300 in 2022/23); (d) Losses: losses on other capital disposals in the same tax year can be set against residential property gains before computing the taxable amount; losses brought forward from earlier years can also be used; (e) Non-residents: non-UK residents must report UK residential property disposals within 60 days regardless of whether they make a gain, Non-Resident CGT (NRCGT) applies; (f) Main residence exemption from reporting: if the property qualifies for full PRR (the entire gain is exempt), no 60-day reporting is required.

• 60-day deadline: report and pay CGT within 60 days of completion of sale of UK residential property, not from exchange
• Annual exempt amount: £3,000 from 2024/25, significantly reduced from earlier years; basic planning should consider losses from other disposals
• Penalties: automatic £100 penalty for missing the 60-day deadline; daily penalties from 6 months; interest accrues from day 61
• Self-assessment: also report the gain on the annual return; the 60-day payment is on account of the final self-assessment liability
• Full PRR exemption: if the entire gain is covered by PRR, no 60-day report is required, but document the basis for the full exemption in case of future HMRC enquiry

Frequently asked questions