Lettings Relief – Do You Qualify?

In the halcyon days of buy-to-let ownership, landlords were able to benefit from lettings relief if they sold a let property which at some point had been their only or main residence. This could reduce the chargeable gain by as much as £40,000. While the relief still exists, it is now only available to landlords who have shared their home with a tenant.

Nature of the Relief

If an individual lives in their home at the same time as a tenant, for example, if they let out a room or several rooms while continuing to occupy the property, they may be able to benefit from lettings relief in addition to private residence relief. It should be remembered that the let part does not qualify for private residence relief.

The amount of lettings relief to which an individual is entitled is the lower of the following three amounts:

• the amount of private residence relief;
• £40,000;
• the chargeable gain made on the part of the house that has been let out.

Example

James has a large four bedroom home. He lets one double bedroom and an en-suite bathroom to a tenant. The room was let out for the whole time that James owned the property. The bedroom and bathroom account for 12% of the floor area of the property.

James purchased the property in August 2017 for £500,000. He sells it in August 2022 for £750,000.

James realises a gain of £250,000 of which 88% is covered by private residence relief. This amounts to £220,000. The remaining gain of £30,000 (12%) relates to the let portion. As the room was let while James lived in the property, lettings relief is available.

This is equal to the lower of:

• the amount of private residence relief: £220,000;
• £40,000; and
• the gain relating to the let part: £30,000.

The lettings relief is therefore £30,000. This reduces the chargeable gain to nil, and James has no capital gains tax to pay when he sells his property.

Partner Note: HMRC guidance HS283; TCGA 1992 s223b; HMRC Guidance CG64710