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Lettings relief

  • 3 min read

Lettings relief allows you to reduce the amount of Capital Gains Tax (CGT) you pay when you sell a property that was:

  • Your main home at one point in time 🏡
  • Partly let out to a tenant while you also still lived there 👭

Normally, you won’t need to pay CGT when you sell your main residence. You get something called Private Residence Relief (PRR). If you weren’t living there for a while or rented it all or a part of it out, you’ll have to pay CGT on any profits you make when you sell the property and won’t be eligible for the full PRR.

The Capital Gains Tax allowance for the 2024/25 tax year is £3,000. If you make less than this amount in profit, you don’t need to declare it to HMRC. 

If you lived in your home at the same time as your tenants, you might qualify for the relief on any taxable capital gains you make when you sell the property 🤩

When you’re eligible for the relief, you can get the lowest of the following:

  • The same amount you got in Private Residence Relief
  • £40,000
  • The same amount of profit you made while letting out a part of your home

You can’t use the lettings relief on profits made when the property was empty or fully let out.

Calculating your relief

Calculating how much lettings relief you could be eligible for requires some maths – but it’s nothing we can’t conquer together

Calculate the:

  1. Total profit you made from selling the property
  2. Number of years the property was your main residence vs. let out
  3. % of years the property was your main residence vs. let out
  4. Amount of profit you’re eligible for Private Residence Relief for (compared to the number of years the property was your main residence)
  5. Leftover amount of profit you made from letting out the property
  6. Choose the lowest of the 3 options for lettings relief

Here’s an example 📝

  1. Let’s say you made £80,000 in profit from the sale of your property
  2. You owned the property for 15 years – 10 years as your main residence and 5 years with a part of it tenanted
  3. You used your property as your main residence for 30% of the total time you owned it and let it out for the rest of the 70% 
  4. You’re eligible for £24,000 (30% of the total profit) in PRR
  5. £56,000 is profit from the property being let out
  6. You’re eligible for £24,000 lettings relief as it’s the lowest of:
    1. £24,000 (the amount you got for PRR)
    2. £40,000
    3. £56,000 (the amount you made as profit from the property being let out)

Need more help?

Remember, you can only be eligible for lettings relief for the time that the homeowner and the tenant shared the property.

Properties that were let out completely, do not fall under the criteria and therefore are not eligible for any CGT exemption. 

We’ve got even more details in our guide, “When do I owe CGT if I sell my house?” that you can use to make an informed decision. 

Oh yeah, and professional, accredited accountants who offer one-off tax advice if you need it! Plus, a bunch more services to help you be the best you 🤝

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