Lettings Relief – benefit from it while you can

What is Lettings Relief?

When you sell a property in the UK that has increased in value, you may owe Capital Gains Tax (CGT) on the gain (profit) you make. However, if the property has been your main residence (your home) for some of the ownership period, you can benefit from Private Residence Relief (PRR), which can reduce or eliminate CGT for the period you lived there.

Lettings Relief was a complementary relief: it allowed you to reduce further the CGT you pay if part (or all) of your main residence had been let to tenants while you also lived there (or previously lived there), and then you sell.

In essence:

• You own a house (or flat) → you live in it as your main home for some period → you let it (or part of it) out → you sell it → you may qualify for Lettings Relief.
• The relief offsets the gain made while letting the property, but only if certain conditions are met.

It’s therefore a useful tool for homeowners who have let out part of their property at some point and then sell — it helps reduce the tax on the gain attributed to the letting period.

Who qualifies for Lettings Relief under current rules?

It’s very important to understand that the rules for Lettings Relief changed significantly from 6 April 2020, so many cases that would previously have qualified no longer do.

Eligibility conditions (post-April 2020)

You will be eligible for Lettings Relief only if all of the following apply:

• The property was your only or main residence at some time during your period of ownership.
• You let out a part or all of the property while you were living in it as your main home (i.e., you co-occupied with tenants), OR you were living in the property and it was being let at the same time.
• Only the part of the gain that is chargeable (i.e., the portion relating to the letting) can attract the relief.
• If you moved out and the whole property was let (with no occupation by you), the relief will not (in general) apply under the new stricter rules.

What has changed?

Prior to 6 April 2020, the relief had a much broader scope and could apply even where the owner had moved out and then let the whole property. Now, the relief is much narrower — effectively only where you lived in the property during the letting.

In practical terms, many “buy-to-let” landlords or those who moved out and then rented the whole property will no longer qualify for Lettings Relief under the current rules.

What doesn’t qualify?

• A property that you never lived in as your main residence (i.e., you bought it purely as an investment / buy-to-let) generally does not qualify.
• A property where you lived for a time and then moved out, and then let the whole property for some period (i.e., you were absent while letting) is generally excluded under the stricter rules.
• The part of the gain that arises from the property being empty (not let) is not covered by Lettings Relief.

How much relief can you claim?

Determining the amount of Lettings Relief requires a calculation that works alongside PRR and the total gain. Here’s how it is commonly calculated (under the current rules):

1. Work out your total gain on the sale (sale price ­– purchase price – allowable costs).
2. Apportion the gain between:
   • The period during which the property was your main residence (covered by PRR).
   • The period was let or non-residential, etc.
3. Calculate PRR for the period you lived in the property (including certain “last months” relief where applicable).
4. Calculate the gain attributable to the letting portion (i.e., total gain less the PRR portion) — this is the “chargeable gain” before Lettings Relief.
5. Lettings Relief amount: you can claim the lowest of:
   • The amount of PRR you’re entitled to (for the relevant portion)
   • £40,000 (per owner)
   • The amount of the gain arising from the letting part
6. Deduct Lettings Relief from the chargeable gain, then deduct any other allowances (for example, the annual exempt amount) to arrive at your taxable gain.

Example: Suppose you bought a house, lived in it for 6 years, then, while still living there, rented out a room for 2 years, and sold, making a total gain of £100,000. Suppose PRR covers 60% of the time, etc, leaving a gain of £40,000 attributable to letting. Under the rules, you calculate PRR, then find the part of the gain from letting (£40k). Lettings Relief is the lowest of (PRR amount), (£40,000), (£40,000) = so maximum relief £40k. This may reduce the chargeable gain to zero.

You must carry exact numbers and show precisely how the gain is split; getting the calculation wrong results in higher tax.

Why Lettings Relief matters commercially

• Tax savings: The relief can meaningfully reduce the CGT payable when you sell a home that has been let. Especially for homeowners who have kept the property for many years and then let part of it, the relief may eliminate CGT for the letting portion.
• Planning benefit: If you are contemplating selling and you have let part of your home, early planning with your accountant can help you maximise PRR + Lettings Relief, for example by timing occupation, letting periods and documenting usage.
• Risk mitigation: If you assume you don’t qualify for Lettings Relief, but you may, you can lose significant tax savings. On the other side, assuming you qualify when you don’t can lead to tax surprises and penalties.
• Compliance and record-keeping: Documenting when you lived in the property, when it was let, the parts of the property, proportion of usage, etc, becomes vital. Lack of records can mean HMRC challenges the relief.

Key pitfalls and traps to watch

• Never lived in the property: If you never made the house your main home, you cannot claim Lettings Relief.
• Moved out, then let the whole property: Under post-2020 rules, this scenario generally disqualifies the relief.
• Letting more than part while absent: If the property was entirely let while you were absent, the relief will not apply for that absent period.
• Over-claiming the relief: You must apply the “lowest of” rule (PRR amount, £40k, letting‐gain). If you claim more than you’re entitled to, you could face tax/interest and penalties.
• Ignoring CGT reporting deadlines: If you have to report CGT on the sale of residential property, failing to do so in time can trigger penalties. Relief eligibility does not override reporting obligations.
• Mixed-use of rooms / partially let: If you let out a room while living in the rest of your home, the apportionment of the property (floor space/room count) matters. Getting the proportion wrong will affect the relief.
• Assuming old rules still apply: Many homeowners are unaware that the rules changed in April 2020 and may rely on outdated advice that claims relief when they no longer qualify.

How can we help you?

• At Tax Accountant, we assist homeowners and property owners with Lettings Relief and CGT planning. We review your property ownership history, occupation timeline, letting periods and property usage.
• We carry out the full calculation of gain, PRR, letting portion and Lettings Relief to determine precisely what you qualify for.
• We advise on documenting property usage, maintaining records, and supporting HMRC submissions.
• We identify planning opportunities (for example, timing your sale, occupation before sale, understanding the “last months” relief entitlement, etc).
• We prepare the CGT return or self-assessment, help you report the sale and relief correctly to HMRC and ensure you meet deadlines.

If you are planning to sell a property you’ve let in some form, speak to us before you commit — a proper review may save you thousands of pounds in tax.

Practical checklist: Before you sell a property with a lettings history

• Determine the date you acquired the property and the date you expect to dispose of (sell) it.
• Document the period(s) when you occupied the property as your main residence (dates, address, evidence).
• Document the period(s) when you let part (or all) of the property (dates, rental agreement, tenants, room/area rented).
• Confirm whether you co-occupied with tenants while living there (this is critical under post-2020 rules).
• Calculate the total capital gain (sale price minus purchase price minus allowable costs).
• Apportion the gain between the residence period and the letting period.
• Calculate the PRR amount (for the residence period + qualifying last months).
• Determine the gain arising from the letting portion.
• Apply the “lowest of” test to determine the maximum Lettings Relief you can claim (PRR amount, £40k, letting gain).
• Deduct Lettings Relief and then apply the annual exempt amount to determine taxable gain.
• Report the gain and relief to HMRC (CGT return) within the required deadlines.
• Keep all records (ownership, occupation, letting, costs) for at least six years in case of HMRC enquiry.

Lettings Relief is a valuable tax relief for homeowners who have let part of their property while living there, but eligibility has been limited since April 2020. If you’re selling a property you’ve lived in and let out, check your qualification and maximise the relief through careful planning and documentation. Failing to claim it can lead to unnecessary taxes, while incorrect claims may result in penalties. Don’t wait until the last minute—consult our specialist accountant early for the best outcome.