Lettings Relief under section 223B of the Taxation of Chargeable Gains Act 1992 is the post-2020 incarnation of a relief that used to be much broader. Section 223B was inserted by Finance Act 2020 with effect from 6 April 2020. The change was substantive: the relief that previously applied to the let portion of a former main residence (without any requirement for the owner to share occupation with the tenant) is now restricted to live-in landlord arrangements.

The £40,000 cap survived the change. The lower-of-three computation survived. The PRR-prerequisite survived. What changed is the gateway: shared occupation between owner and tenant is now mandatory. The typical accidental-landlord scenario (owner moves out, lets the former home, no shared occupation) is closed.

This guide sets out the post-2020 framework, the lower-of-three computation under s.223B(4), the corrected position on the transitional cut-off (which is the date of DISPOSAL, not the date of letting), the spouse interaction, and the Rent-a-Room scheme distinction. For the broader PRR framework that drives the Lettings Relief computation, see the PRR for landlords guide. For the CGT framework as a whole, see the CGT on UK property complete guide.

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The post-2020 framework (section 223B TCGA 1992)

Section 223B TCGA 1992 was inserted by section 24 of Finance Act 2020 with effect from 6 April 2020. The statute reads, in substance:

  • s.223B(1): the gateway. Lettings Relief is available where the owner shared occupation of the dwelling-house with the tenant during the let period.
  • s.223B(2): the qualifying gain. The let portion must give rise to a chargeable gain after PRR has been deducted (no point applying Lettings Relief to a portion already covered by PRR).
  • s.223B(4): the cap. The relief is the lower of three amounts: (a) the PRR already given on the disposal, (b) £40,000, (c) the chargeable gain on the let portion.

The shared-occupation gateway is the load-bearing change versus pre-2020. The owner and tenant must have occupied the dwelling as a single household, with shared common areas. The classic post-2020 qualifying case is a live-in landlord with one or more lodgers who share the kitchen, bathroom and living room.

What changed in April 2020

AspectPre-6 April 2020Post-6 April 2020 (s.223B)
StatuteFormer s.223(4)(b) + s.223(5)(b) TCGA 1992s.223B TCGA 1992 (inserted by FA 2020)
GatewayProperty qualified for some PRR, was let as residential accommodation, owner did NOT need to be resident during the lettingProperty qualifies for some PRR + owner SHARED occupation with tenant during the let period
£40,000 capSame (per owner)Same (per owner)
Lower-of-three computationSameSame (now in s.223B(4))
Accidental landlord (moved out, let former home)QUALIFIEDNOT QUALIFIED
Live-in landlord with lodgersQUALIFIEDQUALIFIED
Spouse / civil partner eachOwn £40k capOwn £40k cap

The shift was material in policy terms. HMRC's stated rationale was that the pre-2020 framework was a relatively generous relief for what was effectively investment activity (letting a former home to third parties). The post-2020 framework restricts the relief to genuine live-in landlord arrangements where the owner remains resident throughout. The relief was estimated to affect approximately 40,000 to 50,000 disposals per year at the time of the FA 2020 change.

When Lettings Relief still applies: the shared-occupation gateway

The post-2020 qualifying cases:

  • Live-in landlord with lodgers (the typical case): owner occupies the dwelling as main residence, lets one or more rooms to lodgers, shares common areas (kitchen, bathroom, living room) with the lodgers. Continues to satisfy the s.222 main-residence test on the dwelling as a whole.
  • Owner letting part of a home while continuing to live there: a self-contained annex within the main dwelling that is let to a tenant who shares common areas with the owner may qualify (fact-specific on the 'shared' test).
  • Owner sharing with family members at rent: shared occupation by family members at commercial or near-commercial rent can qualify if the family member is a separate household tenant in practice, sharing the dwelling.

What does NOT qualify under post-2020 rules:

  • Owner moves out and lets the former home to tenants (the typical accidental-landlord scenario)
  • Owner converts the home into self-contained flats and lets one or more flats (the let flat is then a separate dwelling)
  • Owner lets the entire property while living elsewhere
  • Owner buys a property specifically to let to tenants (never the owner's main residence so PRR prerequisite fails)

Worked example with explicit lower-of-three computation

Priya bought a Birmingham property in 2014 for £180,000 and lived in it as her main home until 2022 (8 years). From 2022 she let one bedroom plus access to the bathroom and kitchen to a series of lodgers, while continuing to occupy the property as her main residence. The lodger-letting continued until 2026 (4 years of shared-occupation letting). In June 2026 she sells the property for £320,000 with £8,000 of disposal costs. Her residual base cost (after acquisition costs and minor capital improvements) is £190,000.

Step 1: chargeable gain

  • Net sale proceeds: £312,000 (£320,000 − £8,000)
  • Base cost: £190,000
  • Chargeable gain: £122,000

Step 2: PRR computation

  • Total ownership period: 12 years (144 months)
  • Actual main-residence occupation: 8 years (96 months, 2014 to 2022) plus the entire shared-occupation period 2022 to 2026 (also main residence, because the property remained Priya's main home while lodgers shared)
  • The shared-occupation period counts as main-residence occupation for s.222 purposes (Priya continued to live there as her main home)
  • So 100% of the ownership period is main-residence: PRR = £122,000

Note that this gives no residual gain, so no Lettings Relief is needed. This is the typical clean shared-occupation case where PRR alone covers the disposal.

Now consider the variant where Priya moved out for 2 years (2022 to 2024) and let the property fully to tenants during those 2 years (no shared occupation, owner not resident), then moved back in for shared occupation 2024 to 2026 (2 years of shared lodger-letting), then sold in 2026.

Step 2 (variant): PRR computation

  • Total ownership period: 12 years (144 months)
  • Main residence period: 8 years (96 months) + 2 years shared occupation 2024-2026 (24 months) = 120 months
  • Plus the final 9 months (already within the 24-month shared-occupation period)
  • Qualifying period for PRR: 120 months out of 144 = 83.3%
  • PRR exempt amount: £122,000 × 83.3% = £101,667
  • Residual chargeable gain on the let portion (the 2022-2024 fully-let period when Priya was not in occupation): £122,000 × 24/144 = £20,333

Step 3: Lettings Relief check (lower of three under s.223B(4))

  • (a) PRR already given = £101,667
  • (b) £40,000 cap = £40,000
  • (c) Chargeable gain on the let portion = £20,333
  • Lowest of three = £20,333
  • Lettings Relief = £20,333 (covers the entire residual let-portion gain)

The load-bearing point: the let-portion gain of £20,333 attributable to the 2022-2024 fully-let period (NOT shared occupation) is NOT eligible for Lettings Relief under post-2020 rules. The £20,333 is on the period when Priya was not resident. The 2 years of shared-occupation lettings (2024-2026) attracted PRR rather than producing a residual let-portion gain (because Priya was in main-residence occupation during that period). So in this variant, the residual £20,333 gain is fully chargeable to CGT after the £3,000 AEA: £17,333 at Priya's marginal rate.

The example illustrates the post-2020 mechanic: Lettings Relief is available only on the chargeable gain attributable to shared-occupation periods. Pre-2020, the 2022-2024 fully-let period would have qualified for Lettings Relief (up to the £40,000 cap) even without shared occupation. Post-2020, it does not.

Transitional rules for pre-April 2020 lettings (corrected position)

The pre-2020-vs-post-2020 transition is a load-bearing area where some legacy advice is wrong. The corrected position per HMRC manual CG64710:

The cut-off applies to the date of DISPOSAL, not the date of letting.

For a disposal on or after 6 April 2020, the post-2020 restricted rules apply to the ENTIRE letting period, including any portion of the letting that pre-dates April 2020. The post-2020 rules govern the relief available on the disposal regardless of when the letting started.

Example: a property let from 2018 onwards, sold in 2026.

  • Wrong (pre-2020 cutoff applied to letting): Lettings Relief available for 2018-2020 portion of letting under pre-2020 rules; not available for 2020-2026 portion under post-2020 rules.
  • Correct (disposal-date cutoff per CG64710): Lettings Relief governed by post-2020 rules for the entire 2018-2026 letting period. Not available unless the owner was in shared occupation throughout, or for the shared-occupation sub-periods only.

The wrong framing has been circulating in legacy advice including some on-site content. The corrected position is in HMRC CG64710 directly and is the load-bearing rule for any post-2020 disposal. For pre-6-April-2020 disposals, the pre-2020 framework still applies (those disposals were settled under the old rules at the time and are not reopened).

Lettings Relief and PRR interaction for spouses

For jointly owned property, each spouse computes Lettings Relief separately against their own £40,000 cap. The cumulative relief can therefore reach £80,000 on a couple's joint disposal, subject to the per-owner lower-of-three test being binding.

The interaction with the s.222(6) one-residence-per-couple rule: while living together, spouses and civil partners can have only one main residence between them for PRR purposes. Where the couple has a single shared dwelling that they both occupy with lodgers, both spouses' shares of the dwelling are within the s.222(6) main-residence cover, and both can claim Lettings Relief on their share of the let-portion gain. Where the couple has two properties and elects under s.222(5)(a) to nominate one as the main residence, only that nominated property attracts PRR and Lettings Relief for both spouses.

Form 17 (the income tax declaration of beneficial interest split for jointly held property) does NOT affect Lettings Relief. Lettings Relief follows actual occupation and the underlying beneficial ownership, not the Form 17 income-tax split. A couple holding the property 50/50 beneficially with a Form 17 declaring a 90/10 income split would still have Lettings Relief computed on the 50/50 CGT split.

Detailed mechanics of joint-ownership PRR are in the joint-ownership PRR mechanics guide. The two-properties election under s.222(5)(a) is in the two-properties election guide.

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Lettings Relief versus the Rent-a-Room scheme

The Rent-a-Room scheme under sections 784 to 802 of the Income Tax (Trading and Other Income) Act 2005 is an income tax relief that exempts up to £7,500 per year of rental income from letting furnished accommodation in the owner's main residence. The two reliefs operate in different tax frameworks at different points in the property's lifecycle:

  • Rent-a-Room: income tax, during ownership. Exempts rental income up to £7,500 per year (or £3,750 each for joint owners). The owner can elect into or out of the scheme on a year-by-year basis depending on whether income is below or above the threshold and the comparison with actual-expenses-deducted rental profit.
  • Lettings Relief: capital gains tax, on disposal. Exempts a portion of the chargeable gain attributable to the shared-occupation letting period, capped at £40,000 per owner under the lower-of-three test.

The two reliefs can coexist on the same property in the same year. A live-in landlord with lodgers can use Rent-a-Room to exempt the rental income up to £7,500 during ownership AND on eventual disposal can use Lettings Relief to cover the chargeable gain on the let portion. Many readers confuse the two because both relate to letting part of the main home; they are distinct.

HMRC working position on the interaction is at CG64702 (CGT side) and PIM4001 onwards (income tax side, Property Income Manual).

Decision table: do I qualify for Lettings Relief?

Fact patternLettings Relief?Reason
Live-in landlord with lodgers (sharing kitchen / bathroom / living room)YesShared occupation under s.223B(1); PRR prerequisite met
Owner moved out 2018, let to tenants until 2026 sale (no shared occupation)NoDisposal post-2020; no shared occupation throughout
Owner moved out 2018, let until 2024, moved back in with lodgers 2024-2026 salePartialLettings Relief on the 2024-2026 shared-occupation sub-period only
Owner converted home to self-contained flats, lets flats while living elsewhereNoSelf-contained flat is a separate dwelling; PRR / Lettings Relief don't extend
Owner lets entire property and lives in own separate residenceNoNo shared occupation; PRR prerequisite likely also fails on the let property
Property never the owner's main residence (pure BTL)NoPRR prerequisite fails; no Lettings Relief possible
Disposal completed BEFORE 6 April 2020 with pre-2020 framework qualifying lettingYes (historic)Pre-2020 rules apply to disposals before that date
Joint-owner couple with shared-occupation lodger arrangementYes (per owner)Each spouse claims own £40k cap on their beneficial share

Other reliefs and alternatives where Lettings Relief is closed

For the typical accidental-landlord scenario where Lettings Relief is no longer available, the lever set is:

  • Maximise PRR: the period of actual main-residence occupation plus the final 9 months always qualifies. See the PRR for landlords guide for the time-apportionment computation and deemed-occupation rules.
  • £3,000 annual exempt amount per owner: spouse-share stacking via s.58 doubles the AEA on a single disposal. See the AEA depth guide.
  • Spouse rate-band split (s.58): pre-sale transfer to a basic-rate spouse can shift part of the gain from 24% to 18%. See the spouse transfer guide.
  • Capital loss offset (s.16): brought-forward losses can be set against the chargeable gain. See the capital losses guide.
  • Deferral routes: EIS Sch 5B, incorporation relief s.162, holdover s.165 / s.260. See the CGT deferral guide.

The broader reduce-CGT survey is in the reduce CGT survey.

Limited company alternative for larger portfolios

A limited company holding investment property is taxed under the Corporation Tax framework on chargeable gains, not under CGT. Lettings Relief is an individual-taxpayer relief under TCGA 1992 and does not apply to companies. The company computes its chargeable gain under the same disposal mechanics (consideration less base cost less allowable costs and reliefs) but pays Corporation Tax on the gain at the company's overall CT rate.

For 2026/27: 19% small profits rate on profits up to £50,000, 25% main rate on profits above £250,000, with marginal relief between. Most property investment SPVs are Close Investment-Holding Companies under section 18N CTA 2010 and excluded from the small profits rate, paying at the main 25% rate on the chargeable gain.

The trade-off in choosing the corporate route: no Lettings Relief, no £3,000 AEA, no individual rate-band split. Compensating advantages include the 25% CT rate vs the 24% higher-rate individual CGT (small differential), the ongoing income tax treatment of rental profit (full deduction of finance costs rather than the Section 24 restricted 20% credit on individual ownership), and the potential s.162 incorporation relief on the original transfer in. Whether incorporation is the right answer is fact-specific and depends on income tax position, portfolio size, exit horizon. The BTL limited company complete guide sets out the full comparison.

Reporting and records

Where Lettings Relief reduces the chargeable gain to nil after PRR and AEA, no 60-day CGT on UK property return is required for UK residents. The disposal still appears on the SA108 capital gains pages of the Self Assessment return with the relief figures shown.

Where Lettings Relief partially covers the gain and CGT is still payable, the 60-day return is required (UK residents) within 60 days of completion, with the Lettings Relief figure shown. Non-UK residents must file the 60-day return on any UK land disposal regardless of tax due. Full 60-day mechanics are in the 60-day CGT deadlines guide.

Records to retain for a Lettings Relief claim:

  • Tenancy agreements specifying shared common areas (kitchen, bathroom, living room access)
  • Utility bills covering the whole property in the owner's name during the let period
  • Council tax for the whole property in the owner's name during the let period (single-dwelling assessment)
  • Evidence of owner's continued residence during the let period (electoral roll, GP / dentist registration, employer correspondence to the address)
  • Evidence of tenant's residence at the address (separate tenancy file, references, deposit records)
  • Bank statements showing rent receipts
  • Photographs and floor plans showing the layout of shared areas (useful for HMRC enquiry)
  • The PRR computation feeding the Lettings Relief calculation (residence-period dates, deemed-occupation evidence)
  • The Lettings Relief computation worksheet showing the lower-of-three test

HMRC standard retention is 22 months after the end of the tax year for non-business taxpayers and five years and 10 months for business taxpayers. In practice retain for at least six years after disposal, and longer where there is any unusual feature in the Lettings Relief or PRR computation.

Sources and further reading