Letting relief for landlords was once a valuable CGT relief that could reduce capital gains tax by up to £40,000 per property. However, significant changes in April 2020 have left many landlords wondering what letting relief remains available. The answer is: very little, and only in specific circumstances.

If you owned rental property before April 2020, understanding these changes is crucial for your capital gains tax planning. The relief that once applied broadly to all landlords now only applies during periods when you shared occupancy with tenants.

What Was Letting Relief Before April 2020?

The old letting relief was generous. For each property, landlords could claim relief of the lower of:

  • £40,000
  • The amount of Private Residence Relief (PRR) already claimed
  • The actual capital gain on the property

This meant that if you lived in a property as your main home for several years, then let it out, you could potentially claim both PRR for the period of occupation and letting relief of up to £40,000 for the rental period. For a couple owning jointly, this could mean up to £80,000 of relief.

The relief applied to the entire period the property was let, regardless of whether you lived there during the tenancy.

What Changed in April 2020?

From 6 April 2020, letting relief was drastically restricted. The relief now only applies during periods when:

  • You let out part of your main residence, AND
  • You shared occupancy with the tenant(s)

This means letting relief 2026 only applies if you're living in the same property as your tenants during the rental period. Simply letting out your former home after moving elsewhere no longer qualifies for any letting relief.

The £40,000 letting relief maximum remains the same, but the circumstances where it applies have been severely limited.

When Does Letting Relief Still Apply?

Letting relief for landlords now only applies in these specific scenarios:

Shared Occupancy Arrangements

You can still claim letting relief if you:

  • Live in the property as your main residence
  • Let out rooms to lodgers or tenants
  • Share common areas like kitchen, bathroom, or living room
  • The letting occurs during your period of residence

For example, if you live in a four-bedroom house and rent out two bedrooms to lodgers while continuing to live there, any capital gain attributable to those rooms could qualify for letting relief.

What Doesn't Qualify

These common scenarios no longer qualify for letting relief:

  • Moving out and letting your former home to tenants
  • Buying a property specifically to rent out
  • Converting your home to separate self-contained flats
  • Letting the entire property while you live elsewhere

How Letting Relief Works in Practice

When letting relief does apply, it works alongside Private Residence Relief. Here's how the calculation typically works:

Let's say you own a property that has gained £100,000 in value. You lived there for 8 years as your main home, then shared it with lodgers for 2 years before selling.

  • Total ownership period: 10 years
  • Private residence period: 8 years
  • Shared letting period: 2 years

The PRR would exempt £80,000 of the gain (8/10 × £100,000). The remaining £20,000 gain from the letting period could potentially qualify for letting relief, reducing your taxable gain to zero.

Transitional Rules for Pre-April 2020 Lettings

If you started letting your property before 6 April 2020, there are transitional arrangements:

The old letting relief rules apply to the period up to 5 April 2020. For any letting after 6 April 2020, the new restricted rules apply.

This means if you moved out of your home in 2018 and let it until selling in 2026, you could claim letting relief for the period from 2018 to April 2020, but not for the period from April 2020 onwards (unless you moved back in and shared with tenants).

Planning Around the Letting Relief Changes

With letting relief now severely restricted, landlords need to consider alternative strategies:

Consider SPV Structures

Property held in a limited company isn't subject to CGT — it pays corporation tax on capital gains instead. While this isn't always beneficial, it can be worth considering for larger portfolios.

Optimize Private Residence Relief

If you're planning to let out your home, consider whether extending your period of residence might be beneficial before making the switch to rental.

Plan Your Disposals

With less relief available, timing property sales to manage your overall CGT liability becomes more important. Consider spreading disposals across tax years or using your annual exempt amount strategically.

Impact on Different Property Strategies

Buy-to-Let Investors

Properties bought specifically for rental never qualified for letting relief anyway, so the changes don't directly affect pure buy-to-let investors. However, they do affect investors who previously lived in properties before letting them.

Accidental Landlords

These changes hit "accidental landlords" hardest — those who moved house but kept their previous home as a rental property. Previously, they could claim substantial letting relief. Now they typically can't claim any.

Live-In Landlords

Landlords who share their home with tenants are the only group that can still benefit from letting relief. This might make lodger arrangements more attractive from a tax perspective.

Calculating Your Position

To determine if any letting relief applies to your situation, you need to establish:

  • When you acquired the property
  • Periods of main residence
  • Periods of letting (and whether you shared occupancy)
  • When any letting started and ended
  • The total capital gain on disposal

Given the complexity of these calculations, especially with the transitional rules, it's often worth getting professional advice to ensure you're claiming all available reliefs correctly.

Record Keeping Requirements

If you're claiming letting relief, maintain detailed records of:

  • Periods of occupation and letting
  • Evidence of shared occupancy (tenancy agreements, utility bills, etc.)
  • Property improvements and acquisition costs
  • Disposal costs and legal fees

HMRC may scrutinize letting relief claims, particularly around whether genuine shared occupancy occurred.

What This Means Going Forward

The practical impact of these changes is that most landlords can no longer rely on letting relief to reduce their CGT liability. This makes other aspects of property investment tax planning more important:

  • Maximizing allowable costs and improvements
  • Using annual CGT exemptions effectively
  • Considering incorporation for larger portfolios
  • Planning disposal timing carefully

The days of significant CGT relief through letting relief are largely over for most landlords. The focus now needs to be on other legitimate ways to minimize capital gains tax liability.