Private Residence Relief and Second Homes: Essential Insights for Landlords in 2025

If you own a second home that you rent out, understanding Private Residence Relief (PRR) is essential for managing your tax liability when you decide to sell. Private Residence Relief can reduce or even eliminate the Capital Gains Tax (CGT) you owe on your main home, but you need to know how it applies when you have more than one property.

As a landlord, your main residence and rental properties are treated differently by HMRC. If you rent out your former home or have more than one property, you may still qualify for some PRR, but the rules can be complex. Knowing how to nominate your main residence and use PRR correctly can save you a significant amount in tax.

You need to keep track of the time you live in each property and the periods when each was your main residence. These details affect how much of your gain is tax-free when you sell. Being clear on Private Residence Relief and how it relates to second homes will help you plan ahead and avoid unexpected Capital Gains Tax bills. For more detailed guidance, visit this explanation of Private Residence Relief and second homes.

Understanding Private Residence Relief (PRR)

Private Residence Relief (PRR) helps reduce or remove Capital Gains Tax (CGT) when you sell a home that has been your main residence. It works by allowing you to claim relief based on the time you lived in the property and other qualifying periods. To use PRR, you need to meet certain conditions about your ownership and use of the home.

What Is Private Residence Relief?

Private Residence Relief, often called PRR, is a tax relief designed to protect your main home from CGT when you sell it. If the property has been your only or main residence during the time you owned it, you may not need to pay any CGT on the profit.

This relief applies only to your primary residence. Properties that have been rented out or used for business purposes may only qualify for PRR for the part of time you actually lived there.

How PRR Works in the UK

PRR exempts you from paying CGT on the gain made when you sell your main home. The exemption covers the whole time you lived there, plus a final period of up to 9 months, even if you didn’t live there during those last months.

If you’ve lived in the property for part of the ownership period, PRR applies only to that portion. HMRC calculates your gain and multiplies it by the proportion of qualifying time. This means if you owned your home for 10 years but only lived there 6, you get relief for 6/10 of the gain.

Qualifying Conditions

To qualify for PRR, the property must be your main residence for all or part of the time you own it. You must have actually lived in the home. It cannot be solely a rental or business property.

You need to have owned the home, not just rented it. You can only claim PRR for one home at a time, so if you had two properties, you must nominate which one is your main residence.

Certain periods, like if you had to move away for work or you lived somewhere else temporarily, may still count, subject to time limits.

You should keep good records to show your periods of residence, especially when you’ve had breaks in living there. For more details, visit private residence relief in the UK.

Capital Gains Tax and the Main Residence

When you sell a property that has been your main home, you may be eligible for relief from Capital Gains Tax (CGT). This relief depends on clearly identifying your main residence, the time you have owned and lived in it, any periods when you were absent, and how the market value of your property is assessed if you have more than one home.

Determining the Main Home

You can only have one main residence at any given time for CGT relief purposes. Usually, this is the property you live in most of the time. If you own two homes, you must nominate which one is your main residence within two years of owning both.

The nominated home receives the Private Residence Relief, which exempts it from CGT. If you don’t nominate, HMRC will decide based on factors like where you spend the most time, where your family lives, and where you are registered to vote.

Period of Ownership and Occupancy

Private Residence Relief applies to the period you actually own and occupy the property as your main home. It also includes the last nine months of ownership, even if you have moved out.

To qualify, you don’t need to live there continuously. Part-time occupation may count, but the key is that it was your main home during the ownership period. Time when the property was rented out or unused usually doesn’t qualify for relief.

Period of Absence Rules

You can claim relief for certain periods when you were not living in your home. These include:

• Up to 3 years for any reason, including working elsewhere
• Up to 4 years if the property was temporarily unoccupied
• The final 9 months before sale, regardless of your residence

If the property was rented out during your absence, relief may still apply if you meet these time limits. Check specific rules if you have long absences or let the property, as this can reduce the relief.

Market Value Assessment

When you buy a second home and nominate it as your main residence, the market value at the date of nomination is important. This value is used to calculate any CGT when you sell it.

If you sell a property after it stops being your main home, CGT is due on the gain made from the market value at the time it ceased to be your main residence, not its original purchase price. This means you pay tax only on the increase in value since your last period of occupancy.

Accurate market valuation can affect your tax bill, so keep professional records if you change your main residence or have multiple properties. For more details, see guidance on nominating a home for CGT relief.

Second Homes and Private Residence Relief

Owning a second home affects how you claim Private Residence Relief (PRR) when you sell property in the UK. You need to understand eligibility, the restrictions involved, how to nominate your main residence, and the tax effects of owning more than one property.

Eligibility for PRR on Second Homes

PRR mainly applies to your main residence. If you have a second home, you can still claim relief, but only for the period it was your main home. You qualify if you lived in the property as your primary address for all or part of the time you owned it.

You cannot claim PRR for time when the property was rented out or unused, except for the final 9 months before sale. This last period automatically qualifies for relief regardless of whether you lived in the house then.

Keep records proving when you lived in each home to support your claim if HMRC questions it.

Restrictions and Exemptions

There are key restrictions that limit PRR on second homes. Letting Relief, for example, used to reduce Capital Gains Tax (CGT) if you rented out part of your home, but since April 2020, it only applies if you lived in the property during the letting period.

You cannot claim PRR for periods when the property was your second home but not your main home unless you nominate it as your main residence within certain time limits.

Properties never lived in as a main home don’t qualify for PRR but may be eligible for other reliefs depending on circumstances.

Nominating a Main Residence

If you own two homes, you can officially nominate which one is your main residence for PRR purposes. You must make this nomination within two years of owning both properties.

This nomination affects which property gets PRR and reduces capital gains tax on sale. Without nomination, HMRC will decide based on where you spent most time during ownership.

Your nomination can affect your tax bill significantly, so choose carefully based on your living arrangements and property plans.

Tax Implications for Second Homes

Selling a second home usually triggers Capital Gains Tax because it may not qualify fully for PRR. The gain is calculated on the rise in value from when it ceased being your main residence.

You must report gains and pay CGT through a Self Assessment tax return or the new online service if the sale happened after April 2020.

PRR can reduce your CGT bill but only for qualifying periods. Always calculate carefully and consider nominating your main home to maximise relief.

More details on these rules are available on the government site for tax when you sell your home.

Special Circumstances and Complex Situations

You need to understand how your personal or business situations affect Private Residence Relief (PRR) and related tax rules. Factors like letting your home, using it for business, or changes in your marital status can change your tax liability. Knowing these details helps you plan better and avoid unexpected Capital Gains Tax bills.

Lettings Relief for Landlords

If you let out part or all of your home, you may qualify for Lettings Relief. This reduces the Capital Gains Tax you owe when you sell the property. However, the relief only applies if you lived in the home at some point as your main residence.

The maximum Lettings Relief is £40,000 per owner or up to the amount of your PRR, whichever is lower. This means if you own the property jointly, you could claim double this amount.

Since April 2020, Lettings Relief only applies if you live in part of the property while letting another part. If your entire property is rented out, you usually can’t claim it. This is important for landlords with second homes or buy-to-let properties. For more details, see the information on Lettings Relief and Private Residence Relief.

Business Use and Business Purposes

Using your home for business affects your PRR claim. If a part of your property is used exclusively for business, the gain linked to this area may not qualify for relief.

You must clearly separate business use from personal living space. For example, a home office can still qualify for PRR if it’s a minor part of your home and not a separate business property.

If you run a business that involves developing or selling properties, walking the line between personal use and business purpose becomes complex. HMRC may investigate PRR claims to ensure you don’t claim relief on profits from business activities. Keep good records to prove how you use the property.

Divorce, Separation, and Marriage Considerations

Divorce or separation can affect your PRR and tax liability on home sales. If you transfer property ownership between partners during divorce, there is usually no Capital Gains Tax on the transfer.

Harsh rules may apply if the property’s use changes during divorce or separation, for example, if one partner moves out before the sale. The time you live in the property and when it is sold affects how much relief you can claim.

Marriage or civil partnership transfers do not trigger Capital Gains Tax. You can transfer ownership between spouses without losing PRR entitlement, allowing you to plan tax-efficient sales.

Impact for Married Couples and Civil Partners

Your status as a married couple or civil partners matters for PRR and tax planning. You can transfer property assets between you without triggering Capital Gains Tax, which helps keep both your relief allowances intact.

When selling a jointly owned home, each partner claims PRR on their share of the gain. This can effectively double the relief available compared to a single owner.

If one partner has lived in the home and the other hasn’t, the non-resident spouse can still claim relief for the time the property was a main residence for the resident spouse. This can reduce overall tax liability in joint ownership scenarios.

Non-UK Residents and International Tax Issues

If you own UK property but live abroad, you face specific tax rules. You must understand how tax liabilities work for non-UK residents, what happens when you sell your property, and how you must report to HMRC.

Rules for Non-UK Residents

As a non-UK resident landlord, you are still responsible for UK tax on income from your UK property. You may need to join the Non-Resident Landlord Scheme, where tax is either deducted at source or paid through self-assessment.

You are generally not taxed on overseas income or gains by the UK. However, if you spend time living in your UK property as your main residence, you might qualify for some tax reliefs.

UK residents who own properties abroad also face rules, meaning if you want to claim Private Residence Relief on overseas homes, you must meet certain day count conditions. Understanding residency and property use is essential to manage your tax correctly.

CGT Implications for Overseas Landlords

Non-UK residents must pay Capital Gains Tax (CGT) on any profit from selling UK property. This rule applies even if you live overseas. The tax is based on the gain made while you owned the property.

You may reduce this gain using the annual CGT exemption. If the property was your main home at any point, you could claim Private Residence Relief to lower the taxable gain.

Calculating the gain and understanding how reliefs apply can be complex. Ensuring you’re aware of your entitlements helps minimise your tax bill.

Reporting and Compliance with HMRC

You must report any UK property income and capital gains to HMRC. For rental income, you submit a Self-Assessment tax return. If you join the Non-Resident Landlord Scheme, tax may be collected automatically.

When selling property, you have 60 days from completion to report the sale and pay any CGT due. Missing deadlines can lead to penalties and interest.

Keeping accurate records of income, expenses, residence periods, and property use helps you meet HMRC’s rules. It is vital to stay compliant to avoid fines and manage your tax efficiently.

More detail on these rules is explained in this UK tax for non-UK residents on UK income and gains.

Practical Advice and Next Steps for Landlords

Understanding your tax position and preparing properly can help you manage the costs and obligations tied to Private Residence Relief and second homes. Being clear about your tax liabilities, seeking professional guidance, and organising your property sale documents are essential steps.

Assessing Your Tax Liabilities

You need to calculate how much Capital Gains Tax (CGT) could apply when you sell a property that was once your main residence but later rented out. The amount of Private Residence Relief depends on how long you lived there and the rental period.

Keep track of:

• The dates you lived in the home
• Time it was rented out or unused
• Any improvements made that affect the property’s value

If your second home was your main home for part of the ownership, you may be able to reduce your tax bill by claiming relief. However, CGT will apply differently to the rental period. Make sure to understand the tax implications or use tools like HMRC’s calculator for estimates.

Expert Advice and Professional Guidance

Tax rules around second homes and Private Residence Relief are complex and can change. It’s worth getting advice from a qualified accountant or tax adviser who specialises in residential property. They can help you:

• Clarify relief eligibility and exact tax liabilities
• Decide if nominating a main residence can reduce CGT
• Plan the timing of a sale to maximise reliefs available

Expert guidance is key if you own multiple properties or are a non-resident landlord. Advisers will also help with proper record keeping to support your claims to HMRC.

Preparing for a Property Sale

Before you sell, gather all documents related to your property’s ownership and use. These include purchase deeds, tenancy agreements, and receipts for renovations.

You should:

• Confirm your property’s freehold or leasehold status
• Keep detailed records of your residency and letting periods
• Understand which parts of the gain might be taxable

Make sure you notify HMRC and file any required capital gains tax returns on time. Proper preparation can reduce delays and unexpected tax charges after the sale. For more on tax when selling your property, see the private residence relief page.

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