What is Private Residence Relief (PRR) and how does it work?

Private Residence Relief (PRR) reduces Capital Gains Tax when you sell a property that has been your main home. The relief applies to the period you lived in the property as your primary residence, reducing or eliminating tax on the gain.

How is Private Residence Relief calculated?

PRR is calculated by dividing the time you lived in the property by the total ownership period. That percentage is applied to the total capital gain to determine the tax-free portion, with any remaining gain potentially subject to Capital Gains Tax.

What is Lettings Relief in the UK?

Lettings Relief is a Capital Gains Tax relief that may apply when part of your main home has been rented out. It can reduce the taxable gain further, but it is now more limited and typically only applies where you live in the property with tenants.

Who can claim Lettings Relief?

Lettings Relief can only be claimed by individuals who have lived in the property as their main residence and also rented out part of it while still living there. It does not apply to fully rented properties.

How does letting a property affect Private Residence Relief?

Letting a property reduces the amount of PRR available because only periods of occupation as a main home qualify. Any rental periods may reduce relief, although partial reliefs like Lettings Relief may still apply in specific cases.

Can you claim both PRR and Lettings Relief?

Yes, in certain cases both PRR and Lettings Relief can apply. PRR covers the period you lived in the property, while Lettings Relief may reduce tax further for qualifying rental periods where you also lived in the home.

Why is understanding PRR and Lettings Relief important?

Understanding these reliefs helps homeowners reduce Capital Gains Tax when selling property. Proper planning ensures maximum relief is claimed and avoids unexpected tax liabilities on disposal.

How PRR Works When You Let Your Home: Private Residence Relief and Lettings Relief Explained

Selling a property that you have previously let out raises questions about how much Capital Gains Tax you will owe and whether Private Residence Relief (PRR) or Lettings Relief can reduce the bill. The good news is that PRR remains available for the periods you genuinely lived in the property as your main home, plus the final nine months of ownership. Lettings Relief may also apply in specific circumstances, though its scope was significantly narrowed from April 2020.

This guide explains how PRR works alongside letting income, how to calculate the relief, and when Lettings Relief can still reduce your CGT liability.

How PRR Applies When You Have Let the Property

Private Residence Relief exempts the proportion of your capital gain that arose while the property was your only or main residence. If you lived in the property for part of your ownership and let it for another part, you receive PRR for the periods of actual residence calculated as a fraction of the total gain.

In addition, the final nine months of ownership are always treated as qualifying occupation, regardless of whether you are living there during that period. This applies provided the property was your main residence at some point during your ownership.

PRR = Total gain × (Qualifying occupation months ÷ Total ownership months)

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Full Worked Example

James bought a property in January 2014. He lived in it as his main home until January 2020 six years (72 months). He then let it fully until January 2026 a further six years (72 months). Total ownership: twelve years (144 months).

Sale price: £450,000. Purchase price: £220,000. Allowable costs: £12,000. Total gain: £218,000.

Qualifying occupation months:

Actual residence: 72 months (January 2014 to January 2020)
Final nine-month exemption: April 2025 to January 2026 = 9 months
Total qualifying: 81 months

PRR = £218,000 × (81 ÷ 144) = £218,000 × 0.5625 = £122,625

Remaining gain after PRR: £218,000 − £122,625 = £95,375

Less annual CGT exempt amount (2025-26): £3,000

Chargeable gain: £92,375

CGT at 24% (higher rate taxpayer): £22,170

Lettings Relief does not apply in this example because James moved out before the property was let there was no shared occupancy (see below).

Lettings Relief: The Post-April 2020 Rules

Lettings Relief used to be widely available to landlords who had previously lived in their property before letting it. Prior to April 2020, Lettings Relief could reduce the chargeable gain by up to £40,000 per owner, even where the owner had moved out years before the property was let.

From April 2020, this changed significantly. Lettings Relief is now only available where the owner and tenant shared occupancy of the property at the same time. This means the relief now applies primarily to landlords who rented out a room or part of their home while continuing to live there themselves for example, a lodger situation.

If you moved out of the property before you started letting it which is the case for most buy-to-let landlords who previously lived in the property Lettings Relief is not available under the current rules.

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When Lettings Relief Can Still Apply

If you did live in the property at the same time as your tenant, Lettings Relief can reduce your CGT liability by the lower of:

£40,000 per owner (so up to £80,000 for jointly owned property)
The amount of PRR you have claimed
The chargeable gain attributable to the letting period

Lettings Relief can only ever be claimed alongside PRR it requires that the property was at some point your main residence. It cannot be claimed on a property you have never lived in.

Qualifying Absences That Still Count as Residence

Certain periods when you were not physically living in the property can still count as qualifying occupation for PRR, provided you met the conditions. These include:

Up to three years of any absence for any reason (provided the property was your main home before and after)
Up to four years of absence while working elsewhere in the UK (same conditions)
Any period working abroad for an employer (no time limit, same conditions)

These rules can extend the qualifying occupation period significantly for people who have worked away from home before eventually letting and selling the property.

The 60-Day Reporting Requirement

If CGT is due after PRR and any Lettings Relief, you must report the disposal to HMRC and pay the CGT owed within 60 days of the completion date of the sale. This is done through HMRC’s online Capital Gains Tax service and is separate from your annual Self Assessment return (which must also include the disposal if you file one).

Missing the 60-day deadline results in automatic penalties. Where PRR eliminates the gain entirely and no CGT is due, the 60-day reporting requirement does not apply but you should still keep full records of the disposal and the basis for the relief claimed.

Get Expert Help With PRR and Lettings Relief Calculations

PRR and Lettings Relief can reduce Capital Gains Tax, but incorrect assumptions often lead to unexpected liabilities. Seeking timely capital gains tax advice London ensures relief is calculated accurately before sale. Cigma Accounting, advising clients from our Farringdon hub and supporting homeowners in Clerkenwell and Barbican, provides clear guidance tailored to your situation.

Accurate 60-day reporting and proper relief claims are essential to avoid penalties. Working with an experienced tax accountant in London helps confirm compliance. Cigma Accounting offers practical support with physical offices across London, helping you protect available exemptions confidently.