CGT Private Residence Relief UK 2026: The Rules, the 9-Month Final Period and Letting Relief Abolished

What Private Residence Relief covers

When you sell your home, any gain — the difference between what you paid and what you sell it for, after allowable costs — is normally exempt from Capital Gains Tax via Private Residence Relief (PRR).

PRR is not a claim you make in the traditional sense. It applies automatically to qualifying periods. HMRC may challenge it if the property was not genuinely your main residence, but for a straightforward owner-occupier who has lived in their home throughout ownership, the full gain is sheltered.

Basic conditions for PRR:

1. You must be an individual (not a company — companies cannot claim PRR)
2. The property must be a dwelling house — residential property
3. It must have been used as your only or main home for the qualifying period
4. The property must not have been used exclusively for business (partial use is allowable — see below)

The formula: calculating your PRR fraction

If you did not live in the property for the entire ownership period, PRR is calculated as a fraction of the total gain:

PRR = Gain × (Qualifying periods of residence + Final 9-month period) ÷ Total period of ownership

Qualifying periods of residence include:

• All periods when the property was actually your main home
• Certain periods of absence that still count (see below)
• The final 9 months of ownership (always)

The non-qualifying gain (the remainder) is subject to CGT after the Annual Exempt Amount (£3,000 in 2026/27).

Periods of absence that still qualify for PRR

Not all time away from your home breaks the PRR entitlement. HMRC permits several periods of absence to be treated as qualifying:

Key rule: For the "any reason" and "working abroad" absences to qualify, you must have lived in the property as your main home before and after the period of absence (unless prevented from returning, e.g., because you needed to live near a new employer).

If you moved out and never returned before selling, only the final 9-month exemption covers the end of ownership. The earlier periods of non-occupation would not qualify under the absence rules unless they meet one of the specific tests above.

The final 9-month exemption explained

This is the most widely misunderstood aspect of PRR. The last 9 months of your ownership period always qualify for PRR, regardless of whether you were living in the property or had moved out.

This provision exists to help people who have moved to a new home but have not yet sold their old one. Without it, every month the old property sat empty or let while waiting for a buyer would create a CGT liability.

Example of how it works:

Sophie owned a flat for 6 years (72 months). She lived in it as her main home for 5 years (60 months), then moved to a new house with her partner and let the flat for 1 year before selling.

• Total ownership: 72 months
• Actual occupation: 60 months
• Final 9 months: qualify (they overlap with the letting period)
• Remaining 3 months of letting: non-qualifying

PRR fraction: (60 + 9) ÷ 72 = 69/72 = 95.83%

If Sophie's total gain is £50,000, her chargeable gain is £50,000 × (1 − 95.83%) = £50,000 × 4.17% = £2,083 — then minus the £3,000 Annual Exempt Amount, so no CGT at all.

Letting relief: what remains in 2026

Before April 2020: If you let your former main residence, you could claim letting relief of up to £40,000 (or the amount of PRR, if lower). This provided significant additional relief for landlords who had once lived in the property.

From April 2020: Letting relief is only available if the owner is in shared occupancy with the tenant — meaning you live in the same property (not just the same building) as the tenant. In practice, this means only landlords who live with lodgers in their home can claim the remaining letting relief.

For the vast majority of landlords who let their entire former main residence — even for just a short period — letting relief is now £0.

This change significantly increased CGT exposure for former owner-occupiers who moved out and let their property before selling.

Two homes: the main residence election

If you own and genuinely use two (or more) properties as a home, you can make a formal main residence nomination to HMRC specifying which property should be treated as your principal private residence for PRR purposes.

Rules:

• You must make the nomination within 2 years of the date you first own two qualifying homes simultaneously
• The nomination can be changed at any time (useful for strategic planning before a sale)
• The nomination does not need to reflect where you spend the most time, but must have some genuine basis — a completely nominal nomination with no real use of the property as a home may be challenged

Why this matters: You might elect to nominate the property with the larger gain as your main residence for a period, then switch back before selling, to maximise the proportion of the larger gain covered by PRR.

HMRC scrutinises elections and will look at evidence of genuine occupation: utilities usage, correspondence address, electoral roll registration.

Partial business use

If part of your home is used exclusively for business — such as a dedicated office room used only for work and never for personal use — the portion of the gain attributable to that room may not qualify for PRR.

Important qualifier: The "exclusive use" test is strict. A home office that is also used as a spare bedroom or family room retains full PRR. Only rooms permanently and exclusively designated for business use lose their PRR entitlement. HMRC guidance makes clear that working from home does not automatically cause a PRR restriction.

Selling a home with a strictly apportioned business room creates a partial CGT charge proportional to the floor area that qualifies as exclusively business.

CGT rates on residential property gains in 2026/27

These rates have applied from 30 October 2024. Before that date (from April 2020), the higher rate was 28%. The October 2024 Budget reduced this to 24%.

Note on the basic-rate test: If your income plus the taxable residential property gain falls below the higher-rate threshold (£50,270 in 2026/27), the portion within the basic-rate band is taxed at 18% and the remainder at 24%.

The 60-day reporting and payment requirement

This is a hard legal deadline that catches many people out.

For any residential property sale that results in a CGT liability (after PRR and the AEA), you must:

1. Report the disposal to HMRC using the UK Property Reporting Service (accessed via your Government Gateway)
2. Pay the estimated CGT

Both must happen within 60 days of the date of completion of the sale. This is separate from Self Assessment and applies even if you will be filing a tax return. Failure to meet the 60-day deadline results in automatic late filing penalties and interest on unpaid tax.

Exception: If PRR fully covers the gain (net CGT liability = £0), no 60-day report is required. But if any CGT is payable, the clock starts on completion day.

Worked example: John — 4 years occupied, 2 years let, gain of £200,000

John bought a house in 2018 for £300,000. He lived in it as his main home for 4 years (48 months), then moved in with his partner and let the house for 2 years (24 months) before selling it in 2026 for £500,000.

Total ownership period: 6 years = 72 months Total gain: £500,000 − £300,000 (plus £5,000 allowable costs) = £195,000 (net of costs)

PRR calculation:

• Qualifying periods: 48 months actual occupation
• Final 9-month exemption: overlaps with last 9 of the 24-month letting period
• Total qualifying months: 48 + 9 = 57 months
• Non-qualifying months: 72 − 57 = 15 months

PRR fraction: 57 ÷ 72 = 79.17%

• Exempt gain: £195,000 × 79.17% = £154,381
• Chargeable gain: £195,000 − £154,381 = £40,619

Letting relief: £0 (John did not share occupancy with tenant — letting relief abolished for this scenario)

After Annual Exempt Amount: £40,619 − £3,000 = £37,619 taxable gain

CGT at 24% (John is a higher-rate taxpayer): £37,619 × 24% = £9,029

John must report this and pay £9,029 to HMRC within 60 days of the completion date.

Development profit vs capital gain

If you buy a property, develop it (renovate, extend, convert), and sell it, HMRC may assess the profit as trading income rather than a capital gain. This matters because:

• Trading income is subject to income tax (20%/40%/45%) and NI
• Capital gain is subject to CGT (18%/24%)
• PRR cannot shelter trading income

HMRC's "badges of trade" test considers factors including: frequency of transactions, profit motive, short ownership periods, degree of modification, and marketing activity. One-off renovations of a genuine main residence are unlikely to trigger trading treatment, but serial property developers risk reclassification.

Sources

• HMRC: Private Residence Relief
• HMRC: Capital Gains Tax rates and allowances
• HMRC: Report and pay CGT on UK property
• gov.uk: Tax when you sell your home
• HMRC: Letting relief