CGT - Lettings relief

Posted on 23rd November 2023 by Streets Capital Gains Tax


Image to represent CGT - Lettings relief

In general, there is no Capital Gains Tax (CGT) on a property which has been used as the main family residence. This relief from CGT is commonly known as Private Residence Relief or PRR. However, where part of the home has been let out the entitlement to relief may be affected. Homeowners that let out part of their house may not benefit from the full PRR but can benefit from letting relief. Since April 2020, letting relief has been restricted to homeowners who live in their property and partly rent it out.

The maximum amount of letting relief due is the lower of:

  • £40,000
  • the amount of PRR due
  • the same amount as the chargeable gain they made while letting out part of their home

Worked example:

  • You rent out a large bedroom to a tenant that comprises 10% of your home.
  • You sell the property, making a gain of £75,000.
  • You're entitled to PRR of £67,500 on the part used as your home (90% of the total £75,000 gain).
  • The remaining gain on the part of your home that's been let is £7,500.

The maximum letting relief due is £7,500 as this 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)

There's no Capital Gains Tax to pay - the gain of £75,000 is covered by the £67,500 PRR and the £7,500 letting relief.

You are not considered to be letting out your home if either:

  • you have a lodger who shares living space with you, or
  • your children or parents live with you and pay you rent or housekeeping.

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The content produced and presented by Streets is for general guidance and informational purposes only. It should not be construed as legal, tax, investment, financial or other advice. Furthermore, it should not be considered a recommendation or an offer to sell, or a solicitation of any offer to buy any securities or other form of financial asset. The information provided by Streets is of a general nature and is not specific for any individual or entity. Appropriate and tailored advice or independent research should be obtained before making any such decisions. Streets does not accept any liability for any loss or damage which is incurred from you acting or not acting as a result of obtaining Streets' visual or audible content.

Information

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