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CGT – Lettings relief

23 November 2023

In general, there is no Capital Gains Tax (CGT) on a property which has been used as the main family residence. This relief from CGT is commonly known as Private Residence Relief or PRR. However, where part of the home has been let out the

In general, there is no Capital Gains Tax (CGT) on a property which has been used as the main family residence. This relief from CGT is commonly known as Private Residence Relief or PRR. However, where part of the home has been let out the entitlement to relief may be affected. Homeowners renting out part of their house may not receive the complete Private Residence Relief (PRR), but they can gain advantages from letting relief.

Since April 2020, restrictions have applied to letting relief, limiting it to homeowners who both reside in and partially rent out their property.

The maximum amount of letting relief due is the lower of:

  • £40,000
  • the amount of PRR due
  • the same amount as the chargeable gain they made while letting out part of their home

Worked example:

  • You rent out a large bedroom to a tenant that comprises 10% of your home.
  • You sell the property, making a gain of £75,000.
  • You’re entitled to PRR of £67,500 on the part used as your home (90% of the total £75,000 gain).
  • The remaining gain on the part of your home that’s been let is £7,500.

The maximum letting relief due is £7,500 as this is the lower of:

  • £40,000
  • £67,500 (the PRR due)
  • £7,500 (the gain on the part of the property that’s been let)

There’s no Capital Gains Tax to pay because the gain of £75,000 is covered by the £67,500 PRR and the £7,500 letting relief.

If either of the following conditions applies, you are not considered to be letting out your home:

  • you share your living space with a lodger, or
  • your children or parents live with you and pay you rent or housekeeping.
Source: HM Revenue & Customs Tue, 21 Nov 2023 00:00:00 +0100

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