If you have tenants in your home, it’s essential to understand the Capital Gains Tax (CGT) implications. Typically, there is no CGT on the sale of a property used as your main residence due to Private Residence Relief (PRR). However, if part of your home has been let out, your entitlement to PRR may be affected.
Homeowners who let out part of their property may not qualify for the full PRR, but they could be eligible for letting relief. Letting relief is available to homeowners who live in their property while renting out a portion of it.
The maximum letting relief you can claim is the lesser of the following:
- £40,000
- The amount of PRR due
- The chargeable gain made on the part of the property let out
Example:
- You rent out a large bedroom to a tenant, making up 10% of your home.
- You sell the property and make a gain of £75,000.
- You qualify for PRR on 90% of the property (£67,500).
- The remaining gain of £7,500 relates to the portion of the home that’s been let.
In this case, the maximum letting relief due is £7,500, which 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)
As a result, you would not owe any CGT—the £75,000 gain is fully covered by £67,500 in PRR and £7,500 in letting relief.
Note that if you have a lodger who shares living space with you or if your children or parents live with you and pay rent or contribute to housekeeping, you are not considered to be letting out part of your home for tax purposes.
