Home 5 Capital Gains Tax 5 Letting part of your home

Letting part of your home

22 February 2024

Private Residence Relief shields the family's main residence from Capital Gains Tax, but letting part of it may affect entitlement. Homeowners renting part can receive letting relief, up to £7,500, offsetting gains and avoiding CGT.

Generally, a property used as the family’s main residence incurs no Capital Gains Tax (CGT). This relief, known as Private Residence Relief (PRR), is applicable. However, letting out part of the home may affect PRR entitlement. Additionally, homeowners partially renting their house may not get full PRR but can avail letting relief. Since April 2020, letting relief is limited to homeowners residing in and partially renting their property.

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

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

Worked example:

  • Firstly, you rent out a large bedroom to a tenant that comprises 10% of your home.
  • Subsequently, you sell the property, making a gain of £75,000.
  • Entitled to PRR of £67,500 on the part used as your home (90% of the total £75,000 gain).
  • Consequently, 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)

No Capital Gains Tax is payable as the £75,000 gain is offset by the £67,500 PRR and the £7,500 letting relief.

You are not considered to be letting out your home if either:

  • you have a lodger who shares living space with you; or
  • your children or parents live with you and pay you rent or housekeeping.
Source: HM Revenue & Customs Mon, 19 Feb 2024 00:00:00 +0100

You may also like these

Here are some more articles that might interest you

Expert Advice

If you’d like more information on anything you’ve read, we’re here and happy to help