Private Residence Relief 2026/27: CGT Exemption on Your Home

What Is Private Residence Relief?

When you sell a property that has been your home, the last thing most people expect is a Capital Gains Tax bill. Fortunately, Private Residence Relief (PRR) — sometimes called Principal Private Residence Relief — is the mechanism that protects UK homeowners from paying CGT on the gain made when selling the home they have lived in.

PRR was introduced to prevent ordinary homeowners from being taxed on what is, for most families, their largest lifetime asset. If you have owned and occupied a property as your only or main home for the entire period of ownership, PRR will cover 100% of the capital gain, meaning no CGT is payable no matter how large the profit.

With residential property CGT rates standing at 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers in 2026/27, and with the Annual Exempt Amount reduced to a mere £3,000, PRR is now worth more in real terms than at almost any point in recent history. A homeowner selling a property with a £200,000 gain could otherwise face a tax bill of up to £47,400 — wiped out entirely by PRR.

The Core Qualifying Conditions

To claim full PRR, two conditions must both be met throughout your entire period of ownership:

Condition 1 — The property was your only or main residence. You must have lived in the property as your home. Owning it is not enough. You need to have actually occupied it as a residence, not merely used it as a holiday property, investment asset, or temporary shelter.

Condition 2 — The garden or grounds do not exceed 0.5 hectares. The relief automatically covers the house and up to half a hectare of grounds (about 1.24 acres). If your garden is larger, you may still claim relief on the excess, but only if HMRC accepts that the additional land was required for the reasonable enjoyment of the property given its size and character.

If both conditions are met for every month you owned the property, PRR is 100% and no CGT arises.

How Partial PRR Is Calculated

Real life is rarely so straightforward. Many sellers have not lived in the property for the full period of ownership — perhaps they rented it out for several years, lived abroad, or owned it as a second home before it became their main residence.

In these cases, PRR is calculated as a proportion:

PRR fraction = (Qualifying months ÷ Total months of ownership) × Total gain

The Final Period Exemption

A key rule eases the transition for sellers: the final 9 months of ownership always count as qualifying months for PRR purposes, regardless of whether you were actually living there. This is designed to cover the period between moving into a new home and completing the sale of the old one.

There is an important exception: if you are disabled or moving into a care home, the final period is extended to 36 months, recognising that these sellers may need considerably longer to complete a property transaction.

Note that the final period exemption was 18 months until April 2020 and 36 months before April 2014. If you are calculating PRR for a disposal that straddles these dates, you will need to apply the rules that were in force at each point in time.

Example: Partial PRR in 2026/27

Suppose Sarah bought a flat in January 2014 and sold it in January 2027 — a total ownership period of 156 months. She lived in it as her main home from January 2014 to December 2019 (72 months), then rented it out from January 2020 until the sale. The final 9 months of ownership (April 2026 to January 2027) automatically qualify.

Her qualifying period is therefore 72 + 9 = 81 months out of 156 months total. Her PRR fraction is 81/156 = 51.9%.

If her gain is £120,000, PRR covers £62,308. After deducting her £3,000 Annual Exempt Amount, she pays CGT on £54,692. As a higher-rate taxpayer, that is £54,692 × 24% = £13,126 — a significant bill, but far less than the £28,128 she would owe without any PRR.

Periods of Absence That Still Qualify

Even if you were not physically living in the property, certain periods of absence are treated as qualifying periods for PRR provided:

1. The property was your only or main home before and after the absence (unless employment reasons applied), and
2. You did not treat another property as your main residence during the absence period.

The qualifying absence periods are:

• Any reason — up to 3 years in total across the whole ownership period
• Working overseas — any length, provided you were working overseas for a UK employer or self-employed
• Working elsewhere in the UK — up to 4 years, where employment or self-employment required you to live elsewhere

These absences can be powerful planning tools for homeowners who have worked abroad or relocated for career reasons.

Letting Relief: A Narrower Relief Since 2020

Before April 2020, Letting Relief was one of the most generous CGT reliefs available — worth up to £40,000 — and applied whenever part of a main home had been let. Since April 2020, the rules changed significantly.

Letting Relief now only applies when the owner shared occupation with the tenant — in other words, you must have been living in the property at the same time as your tenant. Absentee landlords who let their former home while living elsewhere can no longer claim it.

Where shared occupation does apply, Letting Relief is the lower of:

• The amount of PRR you are entitled to
• The gain attributable to the let portion
• £40,000

For most shared-occupation arrangements — such as renting out a spare bedroom — Letting Relief can still meaningfully reduce a CGT liability, but its scope is considerably narrower than it once was.

Business Use and Working From Home

If part of your home has been used exclusively for business, that portion may not attract PRR. HMRC distinguishes between:

• Mixed-use rooms (a dining room also used as a home office): generally still fully covered by PRR
• Exclusively business rooms (a room set aside solely for business, with no domestic use): the corresponding fraction of the gain may be subject to CGT

The good news is that HMRC accepts that most home-working arrangements — particularly since 2020 — involve rooms that retain their domestic character. It is the exclusive dedication of space to business that triggers the issue, not occasional or mixed use.

Separating Couples and Divorce Situations

When a couple separates or divorces, PRR rules become more complex. Key points for 2026/27:

• Living together: Both spouses or civil partners can only have one main residence for PRR purposes between them.
• After separation: From the point of permanent separation, each person can potentially claim PRR on their own main residence independently.
• Deferred sale after leaving: The departing spouse who retains an interest but no longer lives in the property may lose PRR on their share for the period they were absent — except that the final 9-month rule still applies.
• Divorce transfers: Transfers between spouses or civil partners are normally at no gain/no loss for CGT, so PRR does not typically apply at the point of transfer between them.

Since April 2023, separated couples have been given up to three years after the tax year of separation to transfer assets at no gain/no loss, reducing the pressure to complete property transfers hurriedly.

Reporting and Payment Deadlines

If PRR fully covers your gain and no CGT is due, you have no obligation to report the sale to HMRC (unless HMRC specifically requests it or you are already completing a Self Assessment return for other reasons).

If there is any CGT to pay after PRR and the Annual Exempt Amount, the rules are strict:

• You must report and pay CGT on UK residential property within 60 days of the completion date, using HMRC's UK Property Reporting Service.
• Failure to report on time results in penalties starting at £100, with additional daily and percentage-based penalties for longer delays.
• Payment is separate from any Self Assessment tax bill and must be made through the property reporting service even if you also file a Self Assessment return.

Planning Points for 2026/27

With the Annual Exempt Amount at just £3,000 (down from £12,300 in 2022/23), proactive planning around PRR is more important than ever:

1. Nominate your main residence promptly. If you acquire a second property — including a holiday home — make a written nomination to HMRC within two years. Review it as your circumstances change.

2. Time your sale carefully. If you are selling a former main home, completing the sale within 9 months of moving out keeps the full final-period exemption intact.

3. Consider your income in the year of sale. CGT rates depend on your total income in the year of disposal. If you have control over your income — for example through pension contributions or salary sacrifice — reducing income below £50,270 could bring some or all of the gain into the 18% band rather than 24%.

4. Use your spouse's Annual Exempt Amount. Transfers between spouses and civil partners are at no gain/no loss. You can transfer a share of the property to your spouse so that on sale, each of you uses your own £3,000 AEA and potentially benefits from a lower CGT rate band.

5. Keep detailed records. HMRC can enquire into a property disposal years after the event. Keep purchase and sale completion statements, records of improvement expenditure (which increases your base cost), and any evidence supporting your periods of residence.

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This article is for information only and does not constitute financial or tax advice. Tax rules may change. Consult a qualified adviser for your specific situation.