How to Calculate Private Residence Relief: A Step-by-Step Guide
When you sell a property that has been your main home, Private Residence Relief (PRR) can reduce or eliminate the Capital Gains Tax (CGT) you owe on the gain. If you lived in the property as your only or main residence for the entire time you owned it, you will normally pay no CGT at all. But if you rented it out, lived somewhere else for a period, or used part of it for business, the calculation becomes more involved. This guide explains how PRR works, walks through a complete worked example, covers the qualifying absence rules, and addresses Lettings Relief.What Is Private Residence Relief?
PRR is a CGT relief that exempts the proportion of your gain that arose while the property was your only or main residence. It is calculated as a fraction of your total gain, based on the time you lived in the property relative to the total ownership period. The final nine months of your ownership period always qualify for PRR even if you were not living there during that time. This applies as long as the property was your main residence at some point during ownership.The PRR Formula
PRR = Total gain × (Qualifying occupation period ÷ Total ownership period) The qualifying occupation period includes:- All periods during which the property was your only or main residence
- The final nine months of ownership (always exempt, regardless of what you were doing during that time)
- Certain qualifying absence periods (see below)
Worked Example
Sarah buys a property in April 2013. She lives in it as her main home until April 2019 six years. She then moves out and lets the property until she sells it in April 2025 a further six years. Total ownership: twelve years (144 months). Sale price: £520,000. Purchase price: £250,000. Allowable costs (legal fees, estate agent): £15,000. Total gain: £255,000. Qualifying occupation period:- Period of actual residence: April 2013 to April 2019 = 72 months
- Final nine-month exemption: July 2024 to April 2025 = 9 months
- Total qualifying occupation: 81 months
Qualifying Absence Periods
Certain periods when you were not living in the property can still count as qualifying occupation for PRR purposes. HMRC recognises the following:- Any period of absence (up to three years in total) for any reason provided the property was your main home before and after the absence
- Any period spent working elsewhere in the UK up to four years if you were required to live away from home for your job, and the property was your main home before and after
- Any period of any length spent working abroad provided you were required by your employer to live outside the UK, and the property was your main home before and after
Lettings Relief
Lettings Relief can apply where you let out a property that was at some point your main home. However, following changes that took effect from April 2020, Lettings Relief is now significantly restricted. Since April 2020, Lettings Relief only applies where the owner and tenant shared occupancy of the property at the same time for example, where you rented out a room in your home while you were still living there. If you moved out before letting the whole property (as in Sarah’s example above), Lettings Relief is not available. Where it does apply, the maximum Lettings Relief is £40,000 per owner (so up to £80,000 for jointly owned property). The relief is capped at the lower of £40,000, the amount of PRR claimed, and the gain arising from the letting period.The 60-Day Reporting Requirement
When you sell a UK residential property and CGT is due, you must report the disposal and pay any CGT owed within 60 days of completion. This applies even where PRR significantly reduces the gain if any CGT remains payable, the 60-day clock is running from completion date. The 60-day return is separate from your annual Self Assessment return, though the disposal must also be reported on your Self Assessment return if you file one.Record-Keeping
Keep full records of your property purchase, sale, occupation history, and any qualifying absence periods. The standard HMRC requirement is to retain records for four years from the end of the tax year of disposal. For Self Assessment filers, this means keeping records for five years after the 31 January filing deadline for the relevant tax year. Good records include the dates you moved in and out, evidence of actual residence (utility bills, bank statements showing the address, electoral roll registration), and documentation of any qualifying absences (employer letters for work relocations).Speak to an Accountant About Your Capital Gains Tax Position
At Cigma Accounting, we help individuals across London understand how Private Residence Relief (PRR) can significantly reduce or eliminate Capital Gains Tax when selling a property. From Hammersmith, including Brook Green and Ravenscourt Park, homeowners often struggle with calculating eligible periods of occupation, especially when dealing with letting periods or partial use, which is why our capital gains tax services London support is designed to ensure accuracy and full HMRC compliance.
Understanding how to correctly apply Private Residence Relief is essential to avoid overpaying tax and to ensure all qualifying periods are properly accounted for under UK tax rules. With physical offices across London, we provide expert guidance to help you calculate relief accurately, apply the correct exemptions, and ensure your Capital Gains Tax position is fully optimised and compliant.
