Lettings Relief is a Capital Gains Tax (CGT) deduction available to homeowners who let out part of their property while continuing to live there as their main residence. It reduces the taxable gain when a property is sold by up to £40,000 per owner, and it works alongside Private Residence Relief (PRR) to lower your overall CGT liability.
What Is Lettings Relief?
Lettings Relief is an additional CGT deduction designed for homeowners who shared their property with a tenant while continuing to occupy it as their main home. It was significantly restricted from 6 April 2020. Before that date, landlords who had moved out and let the entire property could still claim up to £40,000 of relief. Since April 2020, the shared occupancy condition applies strictly, meaning you must have been living in the property at the same time as your tenant for the relief to apply.
Who Qualifies for Lettings Relief?
You qualify for Lettings Relief if all of the following apply:
- You lived in the property as your main residence at the same time as your tenant
- Part of the property, such as a bedroom or floor, was let for residential use while you occupied the rest
- The property qualified for Private Residence Relief
You do not qualify if:
- You moved out of the property before letting it
- You let the entire property to a tenant with exclusive possession
- Your tenant occupied a self-contained annexe with their own entrance and exclusive use, even if you lived in the main building
Note: If your letting period includes time before 6 April 2020, the previous rules applied for those periods. Specialist advice is recommended where your ownership history straddles that date.
How Is Lettings Relief Calculated?
The amount of Lettings Relief you can claim is the lowest of the following three figures:
- The amount of Private Residence Relief you are already claiming
- £40,000
- The chargeable gain attributable to the letting period
The £40,000 cap applies per owner, not per property. If you jointly own the property with a spouse or civil partner and both of you meet the eligibility conditions, each can claim up to £40,000, giving a combined maximum of £80,000.
Lettings Relief cannot create a loss. If PRR and Lettings Relief together reduce the gain below zero, the figure is treated as nil and is not carried forward.
How PRR and Lettings Relief Work Together
When you sell a property that was partly let, deductions apply in a fixed order before CGT becomes payable.
Step 1: Private Residence Relief
PRR is applied first. It exempts the proportion of the gain relating to the period you lived in the property as your main residence, plus the final 9 months of ownership regardless of occupancy.
Step 2: Lettings Relief
Lettings Relief is applied to the remaining chargeable gain, but only if the shared occupancy conditions are met. It reduces that remaining gain by up to £40,000 per owner.
Step 3: Annual CGT Exempt Amount
The annual CGT exempt amount for 2025/26 is £3,000 per individual. This is deducted from whatever taxable gain remains after both reliefs.
Step 4: CGT on the Remainder
Any remaining gain is taxed at 18% for basic rate taxpayers or 24% for higher and additional rate taxpayers. These rates apply to residential property disposals from 30 October 2024.
Practical Example
Emma has owned her home since 2014. In 2020 she takes in a lodger who rents a large bedroom (20% of the property) while Emma continues living in the rest. She sells in 2025 with a total gain of £80,000.
| Total gain | £80,000 |
| PRR (80% of gain, Emma’s occupied portion) | £64,000 exempt |
| Remaining gain from the let bedroom | £16,000 |
| Lettings Relief (lowest of £64,000, £40,000, or £16,000) | £16,000 |
| Remaining taxable gain | £0 |
| CGT due | Nil |
In this case, Lettings Relief eliminates the remaining gain entirely because the chargeable letting gain of £16,000 is lower than both the PRR amount and the £40,000 cap.
Reporting and Filing
If CGT is due after PRR and Lettings Relief have been applied, you must report the disposal using HMRC’s online UK Property Return service and pay any CGT owed within 60 days of completion. Missing this deadline triggers automatic penalties regardless of whether the tax itself is correct.
Lettings Relief must be claimed in the initial CGT return. It cannot be backdated once the return has been filed. If you believe you omitted the relief on a recently submitted return, contact a specialist immediately as there may be a narrow window to amend.
Key Points to Remember
- Lettings Relief only applies where you lived in the property at the same time as your tenant
- The maximum relief is £40,000 per owner (£80,000 for joint owners)
- It works after PRR and only reduces gain that PRR leaves uncovered
- It must be claimed in the initial 60-day return and cannot be backdated
- CGT rates on residential property for 2025/26 are 18% (basic rate) and 24% (higher rate)
- The annual CGT exempt amount for 2025/26 is £3,000
Property Tax Accountants Can Help
Whether you are a homeowner who took in a lodger, a landlord who shared your home with tenants, or someone planning to sell a property with a mixed-use history, the rules around Lettings Relief can be complex to apply correctly. Property Tax Accountants specialise in helping:
- Homeowners with lodgers or live-in tenants who want to understand whether they qualify for Lettings Relief and how much of their CGT bill it will reduce
- Joint property owners who each want to maximise the £40,000 per-person relief available on a shared property
- Landlords with mixed occupancy history where the property was partly lived in and partly let at different points in ownership, including periods before April 2020
- Property sellers facing a 60-day CGT return deadline who need accurate calculations and a correctly filed return to avoid penalties
- First-time CGT filers unsure how PRR and Lettings Relief interact and whether both can be claimed on the same disposal
- Couples and civil partners looking to structure a joint disposal to maximise combined relief and minimise their overall CGT exposure
We review your full ownership history, calculate the correct proportion of PRR and Lettings Relief applicable to your situation, and prepare and file your 60-day CGT return on your behalf
Frequently Asked Questions
Q1. Can I still claim Lettings Relief if I moved out before selling the property?
No. Since 6 April 2020, Lettings Relief is only available where you shared the property with your tenant at the same time. If you moved out entirely before the letting began, the relief no longer applies to the post-April 2020 period.
Q2. Does Lettings Relief apply to the whole property or just the let portion?
Lettings Relief applies to the gain attributable to the letting arrangement overall, but the amount you can claim is capped at the lowest of the PRR amount, £40,000, or the actual gain from the letting period. It is not calculated purely on the let portion of the floor area.
Q3. Can I claim Lettings Relief on an Airbnb or short-term let?
Yes, provided you lived in the property at the same time as the guest or tenant. Short-term holiday lets or Airbnb arrangements where you remained in the property can qualify, as the shared occupancy condition is met.
Q4. What happens if I co-own the property with my spouse?
Each owner can claim up to £40,000 of Lettings Relief independently, provided both individually meet the eligibility conditions. This means a jointly owned property could benefit from up to £80,000 of combined relief.
Q5. Do I need to keep records to support a Lettings Relief claim?
Yes. HMRC may request evidence of shared occupancy, the letting arrangement, and the rental income received. It is recommended to retain tenancy agreements, rental receipts, utility bills in both names, and any correspondence confirming the arrangement.
Q6. Can Lettings Relief reduce my CGT bill to zero?
In some cases, yes. If the gain attributable to the letting period is fully covered by Lettings Relief and any remaining gain falls within the £3,000 annual CGT exemption, your CGT liability can be reduced to nil.
