Letting Relief When You Rent Out Part of Your Main Residence

Homeowners who live in their property and rent out part of it, individuals with lodgers or tenants in shared occupation, and owner-occupiers concerned about the Capital Gains Tax impact when selling.

When Lettings Relief may be available alongside Private Residence Relief (PRR), how the £40,000 cap operates, and how partial letting affects your Capital Gains Tax position.

Letting out part of your home does not automatically mean you lose PRR. However, misunderstanding the eligibility conditions — particularly following the post-6 April 2020 restrictions — can lead to incorrect CGT calculations when you sell.

When Lettings Relief May Apply

Lettings Relief is available to homeowners who live in their property while renting out a portion of it.

This applies where:

• You occupy the property as your main residence, and
• You rent out part of the property to a tenant or lodger.

The relief operates alongside Private Residence Relief, reducing the chargeable gain attributable to the letting period.

The £40,000 Lettings Relief Cap

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.

Shared Occupation vs Full Letting

Lettings Relief is available where the owner continues to live in the property while renting out part of it.

This typically includes:

• Lodger arrangements
• Tenants occupying a separate room or portion of the home
• Shared occupancy situations

Where the owner moves out and the entire property is let, eligibility for Lettings Relief is restricted under the post-6 April 2020 rules.

The distinction between partial/shared occupation and full letting after departure is critical.

Post-6 April 2020 Position

Following changes effective from 6 April 2020, Lettings Relief is restricted to situations involving shared occupation.

This means:

• Homeowners who remain living in the property while letting part of it may qualify.
• Owners who move out and fully let the property generally do not qualify under the revised rules.

The £40,000 figure remains in legislation, but its availability is now significantly narrower.

Real-World Application

• An owner-occupier taking in a lodger while continuing to live in the property may qualify for Lettings Relief.
• A homeowner renting out a self-contained section of their home during shared occupation may qualify.
• An individual who moves out and rents the entire property will generally not qualify under the post-2020 restriction.

Correct classification of the occupation pattern directly affects CGT exposure at disposal.

Risks and Misconceptions

• Assuming the £40,000 relief automatically applies in all letting scenarios.
• Failing to distinguish between shared occupation and full letting.
• Overestimating available relief when calculating Capital Gains Tax.
• Incorrectly reporting the gain within the 60-day filing window where applicable.

Eligibility must be reviewed carefully before relying on Lettings Relief in a disposal calculation.

Before You Sell

• Confirm the periods of main residence occupation.
• Identify whether shared occupation occurred.
• Assess how Private Residence Relief applies.
• Calculate the gain attributable to any letting period.

Clarity before exchange of contracts ensures that relief is correctly applied and Capital Gains Tax exposure is properly understood.