Changes to Private Residence Relief Rules: What Homeowners Need to Know Now

Changes to the rules around Private Residence Relief (PRR) could affect whether you still qualify for tax relief when selling your home. If you’ve recently bought, sold, or let out a property, it’s important to check if the relief applies to you under the latest rules. You may still be covered, but only if you meet the updated conditions and understand how recent changes affect periods of absence, multiple properties, and letting relief.

These changes mean that some of the old allowances, like the 3-year absence rule and certain letting reliefs, have been tightened or removed. Your situation — such as whether you have more than one home or if you’ve moved out temporarily — will determine how much relief you can claim. Staying informed will help you avoid unexpected capital gains tax bills when you sell.

Understanding what the new rules mean for you can seem complex, but it’s crucial to get it right. This article will guide you through the most important updates so you know if you’re still covered by Private Residence Relief and what steps to take next. For more details about claiming relief and recent updates, see the government’s page on Private Residence Relief.

What Is Private Residence Relief?

Private Residence Relief (PRR) helps reduce the Capital Gains Tax (CGT) you might pay when selling your main home. It depends on how long you owned and lived in the property. Some parts of the ownership period might not count, and certain uses of the home can affect the relief you get.

Qualifying Criteria and Main Residence Rules

To qualify for PRR, the property must be your main residence during the time you owned it. This means you must have actually lived in the home as your main place of residence. You don’t have to live there the whole time, but if you have two homes, you can nominate which one counts as your main residence for PRR.

If you rent out part or all of your home, or use it for business, this can reduce the relief. There are specific limits and conditions on how much letting or business use will affect your claim.

Period of Ownership and Actual Occupation

PRR applies only to the periods when you actually lived in the home as your main residence. Time when the property was empty or rented out may not count, although there are rules that allow some final period relief.

The relief covers the whole time you owned the property plus an extra 9 months at the end, even if you did not live there during those months. This can help if you sold the home after moving out.

Exemptions and Chargeable Gains

Not all gains are covered by PRR. If you owned the property but didn’t live there for the whole time, the gain made during those periods could be taxable.

Letting Relief may reduce gains if you rented out the home, but this has strict limits. Also, if you use the home for business or as a second home, some gain becomes chargeable.

You must calculate your gains carefully and may need to notify HMRC if part of your gain is taxable on sale. For more details, check Tax when you sell your home: Private Residence Relief.

Recent Changes to Private Residence Relief Rules

Recent changes to Private Residence Relief (PRR) affect how you calculate the final period exemption, limit lettings relief, and apply new rules based on important dates and draft legislation. Understanding these changes will help you know how much relief you can claim when selling your main home.

Shortening of the Final Period Exemption

Before 6 April 2020, you could claim the final 18 months of ownership as exempt from Capital Gains Tax, even if you did not live in the property then. Since 6 April 2020, this has been cut to 9 months.

This means only the last 9 months of ownership qualify for the final period exemption, reducing the relief if you moved out earlier than that. The rule applies regardless of whether you lived in the home during those last months or not.

This change is important if your final period of ownership includes a time when the property was not your main residence. You must update your calculations to reflect this shortened exemption period.

Lettings Relief Restrictions

Lettings Relief, once available up to £40,000, has also been tightly restricted since 6 April 2020. Now, you can only claim it if you were both living in and renting out part of the same home.

If you rented out the whole property or moved out before rent started, you generally cannot claim Lettings Relief anymore.

This change aims to target relief more fairly and reduce claims where properties were treated mainly as investments or second homes. You should review your eligibility carefully before assuming Lettings Relief applies.

Relevant Key Dates and Draft Legislation

The key date for these changes was 6 April 2020, when the new rules officially started. Transitional rules exist for periods before this date.

Because some of these adjustments were complex, the government issued draft legislation outlining how the rules should be applied. This helps clarify grey areas, such as when relief applies if you owned the home over a transfer period.

You should check the latest guidance and draft documents to make sure you apply the updated rules correctly. These contain essential details on timing and eligibility criteria. More info is available on HS283 Private Residence Relief (2025).

Impact on Civil Partners and Married Couples

If you are married or in a civil partnership, you need to understand how Private Residence Relief (PRR) works between you and your partner. Only one property at a time can be your qualifying main residence for PRR. Changes like separation or court orders can affect your eligibility and how the relief applies to your property interests.

Civil Partnership and Marriage Treatment

When you marry or enter a civil partnership, and you both own separate homes, you can choose which one counts as your main residence for tax purposes. You must agree jointly on the nomination of the qualifying residence to claim PRR on that property.

You cannot have both homes treated as main residences for PRR at the same time. This means you should carefully decide which property to nominate if you still use both. This nomination impacts how much capital gains tax (CGT) relief you each get when selling a home.

Transfers of property interest between you are generally free of CGT, but the relief only applies once a clear main residence is chosen. You can find more detailed guidance on the nomination rules on GOV.UK.

Separation, Divorce and Court Orders

If you separate or divorce, the PRR rules change. You will need to adjust your main residence nomination if you previously shared one property. Court orders or financial settlements transferring property can affect who qualifies for relief on gains made after the transfer.

If property is transferred from one spouse or civil partner to another following separation or divorce, normal PRR rules may no longer apply in the same way. You should keep evidence of court orders or agreements as these affect how CGT and relief are calculated.

Be aware the relief might be lost or reduced if you fail to nominate the correct property or not update this after your separation or divorce. It is important to review the situation carefully after such changes and consider advice tailored to your circumstances. More details can be found in discussions like those on the HMRC Community Forums.

Calculating Capital Gains Tax on Disposals

When you sell or dispose of your property, you need to work out the gain subject to Capital Gains Tax (CGT). Certain reliefs can reduce or remove your CGT liability. You should understand how CGT applies, how disposals involving connected parties are valued, and how gift hold-over relief works.

How CGT Applies and Exemptions

Capital Gains Tax is charged on the profit when you dispose of your property. If it was your main home, you may qualify for Private Residence Relief (PRR), which can exempt all or part of the gain from CGT. For example, if you lived there the whole time, you might not pay CGT at all.

The final period exemption has been reduced from 18 months to 9 months for most owners. Disabled persons or those in care homes still get 36 months. You can only claim relief for the time the property was your main residence.

You report gains in your self-assessment tax return, specifically in box 54 or the attached computations. Keep good records of purchase and sale dates, costs, and periods of occupancy to ensure the correct figure.

Dealing with Connected Parties and Market Value

When you transfer property to connected parties like family members or spouses, you don’t always use the actual sale price. Instead, you usually calculate the gain using the market value, which is what the property would sell for on the open market.

This rule prevents undervaluing the property to reduce tax. Even if you give the property as a gift, the deemed market value is used to work out your capital gain.

If you share ownership or use the home partly for business, only the share you own and use personally qualifies for relief. You multiply the gain by your ownership percentage or the occupancy rate to find the taxable part.

Gift Hold-Over Relief and Transfers

Gift hold-over relief lets you defer your CGT when you give a business asset or qualifying property as a gift. Instead of paying CGT immediately, the gain is “held over” and passed on to the next owner.

This relief applies mainly to business assets but can sometimes cover shares or qualifying land. It’s not generally available for your main home unless it is part of a business.

When using gift hold-over relief, the person receiving the gift effectively takes on your original acquisition cost. This means their gain will be based on that original cost when they eventually dispose of the property.

You must claim this relief formally with HMRC; it does not apply automatically. Record keeping is important to ensure correct CGT treatment when the gifted asset is later sold.

For more on the specifics of Private Residence Relief and related rules, you can visit the GOV.UK guide.

Special Cases and Common Pitfalls

Some conditions can affect how much Private Residence Relief (PRR) you can claim. These include using part of your property for business, living outside the UK, or periods when you do not live in the home. Knowing these details helps avoid mistakes.

Business Use and Mixed-Use Properties

If you use part of your home for business purposes, such as running a commercial activity or storing stock, you may lose some PRR. Only the part of the property used as your main residence qualifies for full relief.

For example:

• If you have an office in your house, the related area might be excluded from relief.
• Mixed-use properties split between business and personal use must be carefully apportioned when calculating your capital gains.

HMRC often checks these cases closely. Keep accurate records showing how the space is used. This helps you claim the right amount and avoid penalties.

Non-UK Residents and Overseas Disposals

If you are a non-UK resident and sell a UK residential property, PRR rules differ. Since April 2015, non-UK residents must pay Capital Gains Tax (CGT) on UK property gains.

You may still claim PRR for periods when you lived in the property as your main home. However, relief only applies for the time you were UK resident plus the last 9 months of ownership.

Make sure to inform HMRC about your residency status. Failing to do this may result in losing part or all of your relief.

Period of Absence and Non-Occupation

If you move out of your home temporarily, PRR can still apply for some of that time. The last 9 months of ownership always qualify, even if you don’t live there.

You can also claim relief during limited absences for work or health reasons, up to 2 years in total. However, longer absences without a valid reason may reduce your relief.

Keep detailed records of when you occupy or leave the property. This helps you prove eligibility for relief during absences and avoid unexpected tax bills.

Understanding the Rules for Different Property Types

Private Residence Relief (PRR) depends on the kind of property you own and how you use it. Your main residence status, ownership type, and specific parts of your property all affect how much relief you can claim. Knowing these details helps you avoid surprises when selling.

Dwelling-House and Permitted Area

Your main private residence must be a dwelling-house to qualify for full PRR. This means a building designed for living, including the main house and any land or buildings used “for the reasonable enjoyment” of the home.

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The permitted area includes gardens, garages, and other areas within half a hectare of the house. It must be used with the dwelling-house, not separately, to count for relief.

If your land grows beyond this, or if you use part of it for business or unrelated activities, only the part directly linked to your residence may get PRR. You must carefully check what counts as permitted area to maximise your relief.

Freehold and Leasehold Differences

PRR applies to both freehold and leasehold properties. However, ownership type changes your rights and responsibilities. With a freehold, you own the property and land outright, which makes claiming PRR more straightforward.

If you have a leasehold, your relief depends on how much time you own the lease and how you use the property. You must hold a lease long enough to qualify. When leases expire or you sell your leasehold interest, PRR may be affected.

You should keep accurate records of your leasehold term and any changes. These details impact your eligibility and the amount of PRR you can claim.

Residential Accommodation Challenges

Qualifying as your main private residence can be tricky if the property is used partly for other purposes. Letting out part of your home or using rooms for work can limit PRR.

If you rent part of your residential accommodation, some or all of the gain may not get relief unless you meet specific letting relief rules. Also, you must live in the property as your main home at some point during ownership.

Changes in living arrangements, like moving out before selling or having multiple homes, affect PRR. You may need to nominate which property is your main residence if you own more than one.

Use clear records of your residence periods to support your claim and understand how PRR rules apply in complex situations. For detailed guidance, visit Private Residence Relief – GOV.UK.