If you have tenants living in your property, it is important to understand the Capital Gains Tax (CGT) implications. In most cases, there is no CGT to pay when you sell a property that has been your main residence, as the gain is covered by Private Residence Relief (PRR). However, if you have let out part of your home, your entitlement to full PRR may be restricted.
However, you may be entitled to letting relief, provided you lived in the property at the same time as your tenant. Letting relief is only available where there has been shared occupation between homeowner and tenant.
The maximum letting relief available is the lower of £40,000, the amount of PRR due, or the gain attributable to the part of the property that was let. For example, if you rented out a large bedroom representing 10% of your home and later sold the property at a gain of £75,000, you would qualify for PRR on 90% of the gain (£67,500). The remaining £7,500 would relate to the let portion. As this is lower than both £40,000 and the PRR due, the full £7,500 would qualify for letting relief. In this scenario, the entire £75,000 gain would be covered by PRR and letting relief, meaning no CGT would be payable.
You are not considered to be letting out your home if you have a lodger who shares living space with you. Also, if children or parents live with you and contribute towards household expenses, this is not normally treated as a formal letting for CGT purposes, and full PRR is likely to remain available.