For disposals on or after 6 April 2020, lettings relief is only available if you lived in part of your home at the same time as you let another part of it as residential accommodation. The relief is the lowest of the private residence relief already given, £40,000 and the gain that arises because of the letting, and it gives nothing for any period when the whole property was let.

What changed on 6 April 2020?

Before that date lettings relief sat in section 223(4) of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) and could apply where part or all of a home had been let. Finance Act 2020 section 24 inserted a new section 223B for later disposals. HMRC’s manual says the main practical difference is that the old relief could apply to a period when the whole dwelling house was let out, and the new one cannot (CG64710).

The same date also cut the final period exemption from 18 months to 9 months, so most people who move out and let their whole former home lost two sources of relief at once (CG64985). That situation is covered in letting out your former home. This page deals with what is left: homes where owner and tenant live under the same roof.

What is the shared occupancy condition?

Section 223B(2) requires that, at some time in your period of ownership, part of the dwelling house is your only or main residence and another part is being let out by you as residential accommodation. Both must be true at the same time. HS283 puts it as letting part of the house at the same time that another part was your only or main residence.

Because the test is about parts of one dwelling house, identifying the dwelling house comes first (CG64710). HMRC’s guidance draws these lines:

  • If your home is a self contained flat or unit within a larger building, letting other units in the building does not give lettings relief, because they are not part of your dwelling house (CG64723).
  • If your residence is in a building that is not a dwelling house, relief is limited to rooms that were at some time your residence; letting the rest of the building gives no lettings relief (CG64719).
  • In a guest house or similar trade, the whole building may be the dwelling house where the family moves around it during the year, as in Owen v Elliott (63 TC 319) (CG64723).

When is having someone live with me not letting at all?

Some arrangements do not restrict private residence relief in the first place, so no lettings relief is needed. Statement of Practice 14/80 says that where a lodger lives as a member of the family, sharing living accommodation and meals, no part of the home is treated as ceasing to be your residence. HMRC will not restrict relief for a single lodger but may consider a restriction where there is more than one (CG64702). Children or parents who live with you and pay rent or housekeeping are not treated as tenants either (CG64700; GOV.UK).

The income side is separate: a lodger’s rent may fall within rent a room relief, which has no effect on the capital gains position.

How is lettings relief calculated?

Work through it in this order:

  1. Calculate the gain on the whole property.
  2. Calculate private residence relief, reflecting both the proportion of the house you occupied and the length of time. Where use of parts changes over time, section 224(2) adjusts relief on a just and reasonable basis by reference to the extent and the period each part was your residence, and the final 9 months is allowed for any part that was at some stage part of your residence (CG64760).
  3. Identify the gain that is chargeable because the let part was not your residence while the condition was met (section 223B(3)).
  4. Lettings relief is the lowest of the private residence relief, £40,000 and that letting gain (section 223B(4)).

Where the gain left after private residence relief has other causes, such as rooms used exclusively for a trade, only the part relating to the letting is relieved (CG64721). In HMRC’s example at CG64739, a house was 25% residence, 15% student lodgings and 60% teaching space; only the 15% share of the gain was eligible. GOV.UK also notes that lettings relief does not cover any part of the gain that relates to periods when the home was empty.

What do the numbers look like?

HMRC’s own examples show the three limits at work:

Example Gain Private residence relief Letting gain Lettings relief Chargeable
30% let throughout (CG64735) £100,000 £70,000 £30,000 £30,000 Nil
60% let throughout (HS283) £60,000 £24,000 £36,000 £24,000 £12,000

Illustration only. Tom owned a house for 16 years and sold it at a gain of £600,000. For the whole period he let the top floor, agreed at 40% of the house, to a tenant while living in the rest. Private residence relief is 60% of the gain, £360,000, and the letting gain is £240,000. Lettings relief is capped at £40,000, leaving £200,000 chargeable before his annual exempt amount. Had he let the floor for only 8 of the 16 years, the letting gain would be roughly half that, but the £40,000 cap would still bite.

How does lettings relief work for couples and joint owners?

The £40,000 limit applies to each individual, not each property. Spouses and civil partners who own jointly are treated like any other joint owners and the relief is computed separately on each person’s gain (CG64716). In HMRC’s example at CG64738, a couple each made a gain of £75,000 on a home 60% let while they lived in the rest; each received private residence relief of £30,000 and lettings relief of £30,000, leaving £15,000 each chargeable.

Where one spouse has acquired the home from the other while living together, section 222(7) treats the recipient’s period of ownership as starting when the transferor’s did, and section 223B(5) then tests the shared occupancy condition for the earlier years by reference to the spouse who owned it then. See transfers between spouses and civil partners.

How do I claim and report it?

Lettings relief is claimed in the gain computation. HS283 asks you to state on the capital gains summary pages that private residence relief is claimed, give the amount, and enter code LET in box 8 where lettings relief applies (PRR where it does not). If tax remains payable on the sale of a UK home, you will normally need to report and pay within 60 days of completion; see the 60 day property return. Rates for 2026 to 2027 are in capital gains tax rates.

What are the common mistakes?

  • Claiming lettings relief on a disposal after 5 April 2020 for years when the whole property was let.
  • Claiming for a separate flat or annex that is not part of your dwelling house.
  • Applying the relief to periods when the let part was empty.
  • Restricting relief for a single lodger who shares your living space; no restriction is needed.
  • Assuming £40,000 per property, when each owner computes their own relief.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.