Lettings Relief: The £40,000 CGT Break Most Landlords Can No Longer Claim
Last updated 29 June 2026 · 9 min read · By the LandlordTaxAi Editorial Team
Myth vs reality
The myth: “I lived in this flat, then rented it out, so I’ll get £40,000 of lettings relief when I sell.” The reality: for any sale on or after 6 April 2020, lettings relief only survives if you shared the home with your tenant — a live-in landlord with a lodger. Move out and let the whole place, and that £40,000 is gone. It’s one of the most expensive misunderstandings in landlord tax.
Few reliefs are Googled as hopefully — or misremembered as widely — as lettings relief. For two decades it was a genuinely generous break: let out a property that had once been your home, and up to £40,000 of the eventual gain could be sheltered from Capital Gains Tax, on top of the relief for the years you lived there. Then, quietly, the Treasury rewrote the rule so that the people who relied on it most no longer qualify.
This guide does three things: it explains how lettings relief works now, it shows precisely who kept it and who lost it, and it runs the numbers both ways. If you’re weighing up a sale, this is the difference between a clean estimate and a nasty surprise. For the relief that did survive intact, see our note on private residence relief.
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CGT on a Former Home Calculator 2026/27
Estimate the Capital Gains Tax on selling a property you once lived in and later let.
Result
- Total gain
- £66,000
- Less annual exempt amount
- − £3,000
- Taxable gain
- £63,000
- CGT at 24%
- £15,120
- Net proceeds after CGT
- £50,880
Residential rates 18%/24%, £3,000 allowance, 60-day reporting. Lettings relief now needs shared occupancy. Estimate only — not personalised advice.
What lettings relief actually does
Lettings relief never stood on its own — it has always been a top-up to private residence relief (PRR), the relief that makes your main home tax-free. Where PRR covers part of a gain because you also let the property, lettings relief can shelter some of the rest.
When it applies, the relief is the lowest of three figures:
- the amount of private residence relief you receive on the sale;
- £40,000 (per owner); and
- the part of the gain attributable to the letting.
For a couple who each meet the conditions on a jointly-owned property, that’s potentially £80,000 between them. The catch is the gateway test that now sits in front of all of it.
The 6 April 2020 change that caught everyone
Before April 2020, the rule was landlord-friendly to a fault: you could live in a property, move out, let the whole thing for years, and still claim lettings relief on that let period when you sold. It was the standard play for accidental landlords and people who’d kept a first flat.
From 6 April 2020, the legislation (s223B TCGA 1992) added a single, decisive condition: relief is only available where you were in shared occupancy with the tenant — living in the property as your main home at the same time as them. The same Budget also trimmed the final-period exemption from 18 months to 9 months (it stays at 36 months for those who are disabled or move into care).
In plain terms: if you and your tenant were never under the same roof at the same time, you get no lettings relief at all on a 2026 sale — no matter how long ago you lived there.
Who still qualifies — and who doesn’t
| Your situation | Lettings relief? |
|---|---|
| Took in a lodger while living there yourself | Yes — shared occupancy |
| Lived there, moved out, let the whole home | No (for the let period) |
| Let part of the house while living in the rest | Yes — on the let part |
| Buy-to-let you never lived in | No (no PRR either) |
The pattern is clear: lettings relief is now a live-in-landlord relief. If you never shared the property, your only shelter is PRR for the time you genuinely lived there, plus the final 9 months.
Don’t guess your gain
LandlordTaxAi keeps an accurate record of what you paid, your improvement costs and your ownership timeline — the inputs that decide PRR, lettings relief and the tax you’ll actually owe.
See how it worksTwo worked examples, side by side
Both own a flat for 10 years with a £200,000 gain. One shared it; one moved out. Watch what the 2020 rule does.
Maya — live-in landlord (5 years alone, 5 years with a lodger taking half the flat):
| Gain | £200,000 |
| PRR (own use + final 9 months) | Large slice tax-free |
| Lettings relief (shared period) | Up to £40,000 more sheltered |
Tom — moved out and let the whole flat for 5 years:
| Gain | £200,000 |
| PRR (5 years lived + final 9 months) | ~£110,000 tax-free |
| Lettings relief | £0 — never shared |
| Taxable (after £3,000 allowance) | ~£87,000 at 18%/24% |
Same flat, same gain. Maya’s lodger years buy her up to £40,000 of extra relief; Tom’s identical-looking let earns him nothing beyond PRR. The £40,000 hinges entirely on whether someone else shared his front door.
Frequently asked questions
Does lettings relief still exist in 2026?
Yes, but narrowed. Since 6 April 2020 it only applies where you let part of your home while living there — shared occupancy. Move out and let the whole property and you get nothing for that period.
How much is it worth?
Up to £40,000 per owner (£80,000 for a qualifying couple) — specifically the lowest of your PRR, £40,000, or the gain on the let part.
Why did so many landlords lose it?
The rule changed for disposals from 6 April 2020. The previous, more generous version let you claim even after fully moving out; the new one requires you and the tenant to have occupied the property together.
What counts as shared occupancy?
Living in the property as your only or main home at the same time as your tenant — classically, a lodger. It doesn’t cover letting the whole home once you’ve left.
What do I still get if I moved out?
Private residence relief for the time you actually lived there, plus the final 9 months of ownership (cut from 18 months in 2020). The remaining let period is taxable.
Can a couple both claim £40,000?
If the property is jointly owned and each owner independently meets the shared-occupancy test, yes — up to £80,000 combined.
Written and reviewed by the LandlordTaxAi Editorial Team. Our guides are reviewed against current HMRC guidance and updated when the rules change. Operated by LandlordTaxAi, United Kingdom. Follow us on LinkedIn.
Last reviewed: 29 June 2026 · Researched against primary UK sources for the 2026/27 tax year: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64710 (lettings relief, s223B TCGA 1992); https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2025; https://www.gov.uk/government/publications/changes-to-ancillary-reliefs-in-capital-gains-tax-private-residence-relief/changes-to-ancillary-reliefs-in-capital-gains-tax-private-residence-relief. This article is informational only and does not constitute tax advice. Check the latest details on GOV.UK or with a qualified accountant.