Lettings relief is a Capital Gains Tax (CGT) deduction available to homeowners who let out part of their property while continuing to live there as their main residence. It reduces the taxable gain when the property is sold, by up to £40,000 per owner. It only applies where the owner and tenant shared the property at the same time. If you moved out before letting the property, lettings relief does not apply.
This guide explains who qualifies under current rules, how the relief is calculated, how it works alongside Private Residence Relief (PRR), and what CGT you may still owe after both reliefs are applied.
Who Qualifies for Lettings Relief?
Lettings relief is an additional CGT deduction that works alongside Private Residence Relief. It is designed for homeowners who let out part of their property while continuing to live there as their main residence.
You qualify if:
- You lived in the property as your main residence at the same time as your tenant
- Part of the property such as a bedroom or floor was let out for residential use while you occupied the rest
- You and your tenant shared the property as a single household (for example, a lodger arrangement)
You do not qualify if:
- You moved out of the property before letting it
- You let the entire property to a tenant who had exclusive possession
- Your tenant occupied a self-contained annexe with their own entrance and exclusive use even if you lived in the main building
If you moved out before letting the property, lettings relief does not apply. PRR and the 9-month final period exemption will still reduce your gain. See our Private Residence Relief guide for how those are calculated.
A note on pre-April 2020 transactions: If your letting period includes time before 6 April 2020, the previous rules applied for those periods. Lettings relief was available even where the whole property was let. If your ownership history straddles that date, specialist advice is recommended to calculate the correct split.
How Lettings Relief Is Calculated?
The amount of Lettings Relief is typically the lowest of the following three options:
- The amount of Private Residence Relief (PRR) you're eligible for
- £40,000
- The same amount as the chargeable gain you receive from the letting part of the property
The relief can be quite substantial, with a maximum of £40,000 available for those who meet the criteria.
Key Rules and Limits
- The £40,000 cap applies per owner, not per property. If you jointly own the property with a spouse or partner and both of you meet the eligibility conditions, each of you can claim up to £40,000 giving a combined maximum of £80,000.
- Lettings relief cannot create a loss. If the combined effect of PRR and lettings relief reduces the taxable gain below zero, the figure is treated as nil not carried forward.
- The relief must be claimed in your initial CGT return submitted to HMRC. It cannot be backdated after the return has been filed.
How PRR and Lettings Relief Work Together?
When you sell a property that was partly let, three deductions apply in a fixed order before any Capital Gains Tax becomes payable.
Step 1: Private Residence Relief PRR is applied first. It exempts the proportion of the gain that relates to the period you lived in the property as your main residence, including the final 9 months of ownership. Whatever gain PRR does not cover is the starting point for lettings relief.
Step 2: Lettings Relief Lettings relief is then applied to the remaining chargeable gain but only if the shared-occupancy conditions are met. It reduces that remaining gain by up to £40,000 per owner.
Step 3: Annual CGT Exempt Amount The annual CGT exempt amount (£3,000 per person for 2025/26) is deducted from whatever taxable gain remains after both reliefs.
Step 4: CGT on the remainder Any gain still outstanding is taxed at 18% for basic rate taxpayers or 24% for higher and additional rate taxpayers. These rates apply to residential property disposals from 30 October 2024.
Note: If PRR already covers the entire gain which happens where the letting period was short relative to the period of occupation, lettings relief has nothing to act on. The two reliefs do not overlap; lettings relief only applies to gain that PRR leaves uncovered.
The two examples below show how the calculation works in practice one where lettings relief applies, and one where it does not.
Example A: Lodger sharing your home
Sarah has lived in her home since 2015. In 2019 she takes in a lodger who rents a large bedroom (approximately 20% of the property) while Sarah continues living in the rest. She sells in June 2025 with a total gain of £75,000.
Total gain | £75,000 |
PRR 80% of gain (Sarah's occupied portion) | £60,000 exempt |
Remaining gain from the let bedroom | £15,000 |
Lettings relief is the lowest of: the PRR amount (£60,000), the £40,000 cap, or the gain from letting (£15,000).
Lettings relief = £15,000Total taxable gain = £0
No CGT due
Example B: Moved out before letting
James bought his flat in 2012 and lived there until 2018, then moved in with his partner and let the flat fully to a tenant with no shared occupancy. He sells in 2025 with a total gain of £120,000 over 13 years of ownership.
Total gain | £120,000 |
PRR 6 years occupation + 9 months final period = 6.75 of 13 years (51.9%) | £62,280 exempt |
Lettings relief | Does not apply |
Remaining taxable gain | £57,720 |
Less annual CGT exempt amount | £3,000 |
Taxable gain | £54,720 |
CGT at 24% (higher rate taxpayer) | £13,133 |
James must report this disposal and pay the CGT due within 60 days of completion using HMRC's online UK Property Return service. Missing this deadline triggers an automatic penalty regardless of whether the tax itself is correct.
Conclusion
Lettings relief is narrow. Where it applies, it can eliminate CGT on a letting gain entirely but getting there requires the right occupancy arrangement, accurate dates, and a correctly filed return within 60 days of completion.
If your situation is straightforward such as a lodger, a shared household, a clear letting period the steps in this guide will take you through it. If your ownership history is more complex, particularly where it spans April 2020 or involves joint ownership, the numbers are worth checking with a specialist before you complete the sale.
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FAQs
No. Lettings relief only applies where you rented out part of the property while you were still living there. If you moved out before letting, lettings relief will not apply to the letting period. Private Residence Relief and the 9-month final period exemption will still reduce your gain.
No. The relief must be included in the initial 60-day property return submitted to HMRC after completion. Claims cannot be added after the return has been filed. If you believe you omitted the relief on a recently submitted return, contact a specialist immediately. There may be a narrow window to amend depending on how recently it was filed.
Yes. The relief is calculated based on the historical period of shared letting, not on whether a tenant is in residence at the point of sale. Provided the shared-occupancy conditions were met during the letting period, the relief remains available at the time of disposal.
If you are a UK-resident individual and you sell a UK residential property where CGT is due even after PRR and any lettings relief, you must report the disposal using HMRC's Capital Gains Tax on UK property service and report and pay within 60 days of completion. If PRR and lettings relief together eliminate the full gain, there is no CGT to pay but you should still confirm whether a return is required given your specific position. Where any doubt exists, filing is the safer course.
Yes, provided the core conditions are met, the property must be your main residence, and you must share occupancy with the tenant during the letting period. Lettings relief can apply if you rent to family members, if the property was your main residence and you meet the eligibility criteria. The family relationship does not disqualify the claim, but the shared-occupancy condition still applies in the same way as for any other tenant.
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