Introduction: Why Private Residence Relief Confuses So Many Homeowners
Many UK homeowners assume that selling their home won’t trigger a tax bill. For the most part, that’s true; private residence relief often covers the gain. But the picture changes once you consider renting out your home. What was once your main residence can quickly become a hybrid asset in the eyes of HMRC. If you’ve moved out, let the property, or own more than one home, the rules around private residence relief in the UK become harder to follow. Time spent living in the home is exempt; time spent letting it may not be. That’s where CGT private residence relief shifts from straightforward to conditional.
Since 2020, major changes have reduced both the “final exemption period” and access to letting relief. If you’re renting your home out now or planning to, the stakes are higher. This guide breaks down what relief still applies, what doesn’t, and how to avoid the costly mistakes many landlords make.
What Is Private Residence Relief?
To understand the tax on renting out your home, one must first grasp the fundamental mechanics of the relief that protects the family home. Private residence relief is a statutory exemption found within the Taxation of Chargeable Gains Act 1992 (TCGA 1992), specifically sections 222 through 226. Its primary function is to eliminate CGT on the disposal of a dwelling-house that has been the owner’s only or main residence.
How Capital Gains Tax Private Residence Relief Works in Practice
The relief is essentially a time-apportionment mechanism. HMRC calculates the total capital gain over the entire period of ownership and then applies a fraction to determine how much of that gain is exempt. The numerator of this fraction consists of the periods during which the property was the actual main residence, plus certain “deemed” periods of occupation, such as the final months of ownership.
If a taxpayer has lived in the property as their only home for the entire duration of their ownership, the fraction becomes $1/1$, meaning the whole gain is covered by private residence relief capital gains tax, and no liability arises. However, if the owner has spent time renting out their own home, the period of the tenancy (minus the final grace period) becomes a chargeable period, resulting in a proportional tax bill.
What Counts as Your Main or Principal Private Residence?
Identifying what constitutes a “residence” is a matter of both fact and degree. HMRC private residence relief is not granted simply because an individual owns a property or visits it occasionally; it requires the property to have been their genuine home.
HMRC Interpretation and the Quality of Occupation
HMRC places greater weight on the quality of occupation rather than simply the length of time spent in a property. There is no statutory minimum period required for a property to be treated as a residence. However, judicial interpretation indicates that occupation must demonstrate a degree of permanence and continuity. Where a property is used only briefly or serves as a temporary stopgap between other homes, it is unlikely to qualify as a residence for the purposes of private residence relief in the UK.
| Factor | Evidence of Residence |
|---|---|
| Daily Habits | Cooking, eating, and sleeping at the property regularly. |
| Administrative Links | Voter registration, utility bills in the owner’s name, and bank statements sent to the address. |
| Social and Legal Ties | Registration with a local GP, address on a driving license, and presence on the electoral roll. |
| Intent | Evidence that the taxpayer intended to occupy the property as their permanent home at the time of moving in. |
Married Couples and Civil Partners
One of the crucial rules affecting principal private residence relief is that a married couple or civil partners are only entitled to one main residence between them for the purpose of claiming this relief, providing they both reside in it. If both own a property, they will need to make an election for the one that is going to be their jointly used main residence. If the couple separates on a permanent basis, they can then each have a main home again, and each be entitled to relief for one property.
Temporary Absences and Deemed Occupation
The legislation recognizes that life events, such as renting out your home due to work relocations, should not necessarily penalize the homeowner. Certain “periods of absence” are treated as “deemed occupation,” meaning they are included in the tax-free part of the fraction, provided the property was the individual’s actual main residence both before and after the absence.
- Any reason: Up to 3 years in total, regardless of the reason for absence.
- Employment abroad: An unlimited period if the individual is working in an office or employment where all duties are performed outside the UK.
- Work-related distance: Up to 4 years if the individual is prevented from living at home due to the location of their workplace or a condition imposed by their employer.
Two-Home Situations and the Power of Nomination
For individuals who own more than one residence, perhaps they are renting out their second home while living in another. The law allows them to choose which property should attract relief. This nomination must be made in writing to HMRC within two years of a change in the combination of residences. For example, if you buy a second home, you have two years from the date of purchase to nominate either the new or the old home as your main residence. This is a powerful tool for capital gains private residence relief planning, as it allows the owner to protect the assets they expect will appreciate the most in value.
Renting Out Your Home: How It Affects Capital Gains Tax
When a homeowner makes the transition from occupying a property to renting it out your home, they are effectively changing the tax profile of that asset.
Renting Out Your First Home
For many, renting out your home is a matter of necessity or a strategic step up the property ladder. If you decide to rent out your first home, the years you lived there remain protected by private residence relief. However, the period of tenancy is “chargeable,” subject to the final period of exemption. People often ask, “Can you rent out your first home in the UK?” The answer is yes, but you must be prepared for the renting out your home tax implications when you eventually sell.
The Cost and Tax Implications of Letting
The cost of renting your home is not just found in maintenance and management fees, but in the eventual “tax leak” upon disposal. When you decide to rent your home out, you should consider that every month the property is let (beyond the final grace period) reduces the percentage of the gain that is tax-free. For high-value properties in areas with significant growth, the tax on renting your home can be substantial.
| Scenario | CGT Treatment |
|---|---|
| Renting out your first home | Proportional relief based on years lived there vs. years let. |
| Renting out your own home privately | Same as standard letting; the nature of the tenant does not change the CGT calculation. |
| Renting out your second home | Usually fully taxable unless a nomination is made at the right time. |
| Buying another home while renting | The new home becomes the main residence; the old home starts accruing CGT. |
Can You Rent Out Your First Home in the UK?
The question of “can you rent out your first home in the UK” often involves mortgage considerations as much as tax. Most residential mortgages require “consent to let” from the lender before renting your home out. From a tax perspective, HMRC has no restriction on whether you can rent out your first home, but the tax on renting out your home will apply to the profit made during the rental period when the property is sold.
The Final 9-Month Rule Explained Clearly
One of the most valuable aspects of CGT private residence relief is the “final period of exemption.” This rule is designed to protect homeowners who have moved out of their property but are struggling to find a buyer. It grants a period of “deemed occupation” at the very end of ownership, regardless of how the property was used during that time.
Evolution: From 36 to 9 Months
Historically, this grace period was quite generous. For many years, it was 36 months, allowing homeowners three full years to sell their former home tax-free. This was reduced to 18 months in 2014. However, as of 6 April 2020, the standard private residence relief 9 months rule came into effect.
Practical Timelines and Misunderstandings
A common misunderstanding is that the 9-month rule “resets” if you move back into the property. It does not. The private residence relief 9 months rule looks back from the date of completion and grants relief for that final window. It is important to note that for disabled persons or those moving into long-term care, the final period exemption remains at 36 months, providing much-needed protection for those forced to leave their homes due to health reasons.
Letting Relief After 2020: What Still Applies (and What Doesn’t)
Before 2020, letting relief was a major tax-saving tool for landlords who had previously lived in their rental properties. It could exempt up to £40,000 of gain per person. However, the rules were changed to “better focus” the relief on those who share their homes with tenants.
The End of Traditional Letting Relief
For disposals after 6 April 2020, letting relief is only available if the landlord and the tenant were in shared occupancy. If you move out and let the entire property to a tenant, you no longer qualify for letting relief for that period. This change has effectively abolished the
relief for the vast majority of landlords.
The Shared Occupancy Exception
The only scenario where one can still claim private residence relief and letting relief is where the owner lives in the property and lets out a portion of it (for example, to a lodger). If you live in a house and rent out a self-contained basement flat, the portion of the home you live in gets private residence relief, and the portion you let may qualify for letting relief.
Clarifying: Can You Claim Private Residence Relief and Letting Relief?
To answer the common query, “Can you claim private residence relief and letting relief?” Yes, but they are now intrinsically linked to shared living. You cannot claim letting relief for a period when the property was let in its entirety, and you were living elsewhere. This has made preparing to rent out your home a more tax-sensitive exercise, as the “old” benefits that cushioned the CGT blow are gone.
How Private Residence Relief Is Calculated (Step-by-Step)
Calculating CGT private residence relief requires a precise timeline of ownership and a clear understanding of allowable costs. The process involves four main steps.
Step 1: Establish the Total Gain
First, calculate the total profit made on the sale. Buying costs include solicitor fees and Stamp Duty Land Tax. Selling costs include estate agent commissions and legal fees.
Step 2: Account for Improvement Costs
You can deduct “enhancement expenditure”, money spent on capital improvements that increased the value of the property (e.g., an extension or a new roof). Note that routine maintenance and repairs (like redecorating) cannot be deducted from the capital gain.
Step 3: Apply the Time Apportionment Fraction
Identify the number of months the property was your “only or main residence” (including the final 9 months) and divide this by the total number of months you owned it.
Step 4: Deduct Allowances and Calculate Tax
The remaining gain is your “chargeable gain.” You can then deduct your Annual Exempt Amount (AEA), which is £3,000 for the 2024/25 and 2025/26 tax years. If the property is jointly owned, both owners can use their £3,000 allowance.
| Taxpayer Band | CGT Rate (Residential) |
|---|---|
| Basic Rate | 18% |
| Higher / Additional Rate | 24% |
Reporting Capital Gains Tax and HMRC Deadlines
A major change that catches many off guard is the accelerated reporting and payment window. Relying on your end-of-year tax return is no longer sufficient when you sell a property on which tax is due.
The 60-Day CGT Reporting Rule
Since April 2020 (and extended to 60 days in October 2021), any UK resident who disposes of a UK residential property and has CGT to pay must report the sale and pay an estimate of the tax within 60 days of completion. This report is made through the “Capital Gains Tax on UK Property” account on the HMRC website.
Interaction with Self-Assessment
Even after filing a 60-day return, you must still declare the gain on your annual Self-Assessment tax return if you are already in the system. The 60-day payment is treated as a “payment on account” against your final tax liability for the year.
Penalties and Compliance Risks
Failing to meet the 60-day deadline results in an automatic £100 penalty. If the return is more than 3 or 6 months late, additional penalties and interest charges will apply. It is essential to begin preparing to rent out your home and eventually sell it by gathering all cost records early to avoid a last-minute scramble to meet this tight deadline.
What Evidence HMRC May Ask For
HMRC has become increasingly sophisticated in identifying “sham” residence claims through its “Connect” data-matching system. If you are claiming principal private residence relief for a period when the property was not clearly your home, they may request evidence.
Proving Genuine Residence
HMRC looks for a “degree of permanence and continuity.” If they suspect you were merely “visiting” a property to claim CGT private residence relief, they will ask for:
- Utility Usage: Gas and electricity records showing consumption consistent with a person living in the home.
- Correspondence: Bank statements, GP letters, and insurance documents sent to that address.
- Official Records: DVLA records for your car and your entry on the electoral roll.
Red Flags for HMRC
Frequent “flipping” of properties (buying, renovating, and selling within a short timeframe) is a major red flag. HMRC may argue that this is a “trading activity” rather than a capital investment, subjecting the profits to Income Tax (up to 45%) and National Insurance rather than the lower CGT rates.
Common Mistakes When Renting Out Your Home
Navigating the renting out your home in the UK rules is difficult, and mistakes can be expensive.
- Assuming 18 Months Still Applies: Many still believe they have 18 months of grace at the end of ownership. Selling 10 months after moving out without professional advice could lead to an unexpected tax bill.
- Wrong Assumptions About Letting Relief: Forgetting that letting relief now requires “shared occupancy” is the most common error today.
- Poor Record-Keeping: Failing to keep receipts for capital improvements means you cannot deduct those costs, effectively paying tax on “profit” that was actually an expense.
- Missing the Nomination Deadline: Failing to nominate a new property as your main residence within the two-year window can be a costly oversight.
Case Study: Managing CGT After Letting a Former Home
The Challenge
One of our clients approached us after deciding to sell a flat they had lived in for several years before letting it out. Like many homeowners, they assumed private residence relief would fully exempt the gain from tax. What they didn’t realise was that renting out your home, even for a few years, can expose part of the gain to Capital Gains Tax. With the 60-day HMRC reporting deadline approaching, they needed clarity fast.
Our Solution
We reviewed the full ownership and letting history, calculated the gain, and identified which periods qualified for private residence relief in the UK, including the final 9 months. We also confirmed that the relief no longer applied due to changes in the law. Our team prepared the CGT return, submitted it on time, and ensured the client made full use of their annual allowance.
The Outcome
- Total gain: £175,000
- Exempt via PRR: approx. 56%
- Taxable gain: £70,500
- CGT due: approx. £19,750
The return was accepted without enquiry, and the client avoided any penalties or late fees.
“I thought the sale would be straightforward, but the tax side was more complicated than expected. Lanop made the whole process clear and stress-free. I wouldn’t have felt confident handling this on my own.”
How Lanop’s Business and Tax Advisors Can Help
At Lanop’s Business and Tax Advisors, we understand how complicated Capital Gains Tax can become when your home turns into a rental property. Whether you’re managing a single buy-to-let or navigating the tax impact of renting out your home while relocating, our experienced advisors are here to help.
We assist clients with:
- Accurate PRR and CGT calculations: including timelines, exemptions, and apportioning complex ownership or occupancy histories
- Determining eligibility for private residence relief, including final period claims and shared-use scenarios
- Reviewing past lettings to assess if any letting relief can still apply
- Handling the 60-day CGT property return to HMRC, ensuring timely and compliant submissions
- Strategic planning before a move, sale, or re-letting, to help you minimise your CGT exposure
- Guidance on evidence HMRC expects, helping you build a solid case, should they ever review your claim
Every situation is different. That’s why we don’t offer generic advice; we give you clear, personalised support, backed by years of real-world experience.
If you’re unsure about how much tax you might owe or how much relief you can still claim, reach out to Lanop’s team for a confidential consultation.
Frequently Asked Questions
Private residence relief is a tax exemption that reduces or removes Capital Gains Tax (CGT) when you sell your main home. It applies if the property was genuinely your principal residence during ownership. The relief can cover the entire gain if the property was never let and always used as your home.
There’s no fixed monetary cap on private residence relief. If you meet the conditions, it can exempt 100% of your gain on the sale of your home. Partial relief may apply if you rented out the property, lived elsewhere, or used part for business.
Start with your total gain, then calculate how much of your ownership period qualifies as your main residence, plus the final 9 months. Divide that by the total ownership time. Multiply that percentage by your gain to find the exempt amount. The rest may be taxable.
Private residence relief exempts the portion of capital gain made during the time you lived in the property as your main home. You also get a 9-month grace period after moving out. If you rented the home or owned another, some of the gains may still be taxed.
To calculate private residence relief in the UK, identify your total period of ownership, mark periods you lived there, add the final 9 months, and determine what fraction of the gain is exempt. Apply this fraction to your total gain, subtract the result from it, and the rest is taxable.
Yes, you can rent out your home, but this may reduce your private residence relief when you sell. Any period that is not your main residence, such as when it’s fully let, may attract CGT. Timing your sale wisely can help minimise your exposure.
Yes, but you’ll likely pay Capital Gains Tax when you sell it. Unless the second home was your main residence at some point and properly nominated for relief, it won’t qualify for private residence relief. Partial exemptions may still apply if used strategically.
You may. While private residence relief covers the time you lived there, any rental period (beyond the final 9 months) can create a chargeable gain. You’ll pay CGT only on the let portion, after exemptions and allowances are applied.
PRR is a UK tax relief that shields your main home from CGT. It can remove some or all of the tax depending on how long you lived in the property. If the house was your principal residence throughout ownership, the gain is fully exempt.
The final 9 months of ownership are treated as tax-free, even if you weren’t living there, provided the property was your main residence before. This buffer gives time to sell after moving out. It used to be 18 months but was cut to 9 from April 2020.
Not entirely. You still get PRR for the period you lived there and for the final 9 months. The time in between, while it was rented, is usually not covered unless you qualify for statutory absences (deemed occupation) or letting relief (in limited cases).
Yes, if you move back in and the home becomes your main residence again, you can qualify for private residence relief for that new period.
Only if you shared the property with tenants while it remained in your main home. Since April 2020, letting relief is no longer available unless you were in shared occupancy. If you moved out completely, letting relief usually doesn’t apply.
Your main residence is the home you genuinely live in most. If you own more than one, you can tell HMRC which one should be treated as your principal private residence, but only within two years of acquiring the second property.
Yes, if you own two or more homes, you should nominate your main residence to HMRC within 2 years of having that combination. This helps ensure you get private residence relief on the property most likely to gain value.
Conclusion: What to Do Before You Rent or Sell Your Home
The transition from being a homeowner to renting out your home is a significant financial decision that carries long-term tax consequences. While private residence relief remains a cornerstone of the UK tax system, it is no longer the “set and forget” exemption it once was. The 2020 reforms have made it imperative for homeowners to be proactive in their tax planning.
If you are preparing to rent out your home, your first step should be to document your residency history. Keep a file of utility bills, council tax statements, and tenancy agreements. If you own more than one property, review your nomination status immediately to ensure your most valuable asset is protected by CGT private residence relief. Before you sell, consult with an advisor to calculate your expected liability and ensure you are ready to meet the 60-day reporting and payment deadline. By taking these steps, you can ensure that avoidable tax bills or penalties do not erode the rewards of your property investment.
