Renting out part of your home may affect Capital Gains Tax when you sell. While Private Residence Relief applies, Letting Relief can reduce taxable gains. Learn how PRR, Letting Relief, and exemptions impact your tax liability.

If you have tenants in your home, it is essential to understand the Capital Gains Tax (CGT) implications. Typically, there is no CGT on the sale of a property used as your main residence due to Private Residence Relief (PRR). However, if part of your home has been let out, your entitlement to PRR may be affected.

Homeowners who let out part of their property may not qualify for the full PRR, but they could be eligible for letting relief. Letting relief is available to homeowners who live in their property while renting out a portion of it.

The maximum letting relief you can claim is the lesser of the following:

• £40,000
• The amount of PRR due
• The chargeable gain made on the part of the property let out

Example:

• You rent out a large bedroom to a tenant, making up 10% of your home.
• You sell the property and make a gain of £75,000.
• You qualify for PRR on 90% of the property (£67,500).
• The remaining gain of £7,500 relates to the portion of the home that’s been let.

In this case, the maximum letting relief due is £7,500, which is the lower of:

• £40,000
• £67,500 (the PRR due)
• £7,500 (the gain on the part of the property that’s been let)

As a result, you would not owe any CGT—the £75,000 gain is fully covered by £67,500 in PRR and £7,500 in letting relief.

Note that if you have a lodger who shares living space with you or if your children or parents live with you and pay rent or contribute to housekeeping, you are not considered to be letting out part of your home for tax purposes.

From April 2025, the Capital Gains Tax rate on Business Asset Disposal Relief rises from 10% to 14%, increasing to 18% in 2026. Business owners planning to sell may benefit from acting before these changes take effect.

Currently, Business Asset Disposal Relief (BADR) provides a reduced Capital Gains Tax (CGT) rate of 10% on the sale of a business, shares in a trading company, or an individual's interest in a trading partnership. This relief can lead to significant tax savings for those selling their business.

However, as part of the Autumn Budget 2024 measures, the CGT rate for BADR gains will from 6 April 2025, rise to 14% for disposals made on or after that date. Furthermore, the rate is set to increase again to 18% for disposals made on or after 6 April 2026.

Currently, the lifetime limit for claiming BADR is £1 million, allowing business owners to qualify for the relief multiple times. There have been no changes to this limit in the recent Budget, although the lifetime limit may have been higher for assets sold before 11 March 2020.

In contrast, Investors’ Relief has already undergone changes: the lifetime limit has been reduced from £10 million to £1 million for qualifying disposals made on or after 30 October 2024. The CGT rates for Investors' Relief align with those of BADR.

Given these planned increases, business owners considering an exit strategy may wish to act sooner rather than later, as selling before April 2025 could help lock in the current 10% CGT rate.

A negligible value claim lets taxpayers declare an asset worthless for tax purposes, realising a capital loss without selling. This can be backdated up to two years, offering flexibility in managing tax liabilities.

A negligible value claim is a claim made by a taxpayer when an asset they own has significantly decreased in value, essentially becoming worthless or worth next to nothing.

In such a situation, the taxpayer may treat the asset as if it were disposed of even though the retain ownership. For a negligible value claim to be valid, the asset must still be owned by the individual making the claim, and it must have become of negligible value while under their ownership.

The primary benefit of making a negligible value claim is that it allows the taxpayer to realise a capital loss on the asset without the need for an actual sale or disposal. This is particularly advantageous for assets that could, in theory, regain value at some point in the future. By retaining ownership of the asset, the taxpayer maintains the potential for any future recovery in value, even if the likelihood of this occurring is remote.

HMRC provides a negligible value list, which includes shares or securities that were previously quoted on the London Stock Exchange and have been officially declared of negligible value for the purpose of making such claims. For assets not on this list, a formal application must be submitted to HMRC to agree upon a valuation, enabling the taxpayer to establish the asset’s negligible value.

Additionally, a negligible value claim is not restricted to the current tax year. It can be backdated to cover up to two preceding tax years, provided all other qualifying conditions are met. This feature allows taxpayers greater flexibility in managing their capital losses over a longer period.