Service: Probate and estate planning Wealth management 

Sector: Property 

Changes to principal private residence relief

07 Oct 2019

The budget 2018 announced changes to lettings relief and the final period exemption, which extend principal private residence (PPR) relief for Capital Gains Tax (CGT) purposes.

The changes, with effect from 6 April 2020, reduce the final period exemption to nine months.

While the intent of the exemption was aimed at giving a CGT free period in preparation for a sale after cessation of occupation, the purpose of the reduction from 18 months to nine months is to limit PPR relief from potentially arising on two dwellings simultaneously. This could occur in cases where an owner lived in one dwelling as their main residence and subsequently acquires another home that is also eligible for PPR relief. This will not affect the special rules allowing 36 months relief for the disabled and those in a care home. 

There is also a reformed lettings relief being introduced, which means from April 2020 lettings relief will only apply where an owner is in shared occupancy with the tenant. Currently, lettings relief is available for periods where a property is let without any stipulation for shared occupancy and the available relief is the lowest of three options: PPR relief, the gain attributable to the let period or £40,000. This is all set to change and the impact of the new rules potentially serves to significantly restrict the availability of lettings relief. 

These changes will be effective from 6 April 2020 and it is estimated that it will affect approximately 40,000 individuals per year. The tax intake for the government is expected to reflect the increase in CGT following the reduction in and additional restriction to lettings relief.


Mr Smith sells his property and makes a gain of £120,000 which he owned for 12 years. He lived in the whole property for 6 years, then let it out in full for 6 years.

Currently, Mr Smith gets Private Residence Relief for the time he lived there (6 years) and the last 18 months he owned the property, even though he was not living there. This means he gets Private Residence Relief for 7.5 of the years (62.5% of the time) he owned the property.

He gets Private Residence Relief on the same proportion (62.5%) of his gain. This means he will not pay tax on £75,000 (£120,000*0.625) of the gain. The remaining 37.5% (£45,000) of the gain not covered by Private Residence Relief is his chargeable gain before lettings relief under current rules.

Mr Smith can claim £40,000 in Lettings Relief which means he will pay Capital Gains Tax on £5,000 resulting in a liability of £1,400 (£5,000*0.28) - assuming gains are taxed at 28% and he has used his capital gains annual exemption elsewhere.

But from April 2020 the £75,000 figure above falls to £67,500 (£120,000*0.5625) representing the six years and the final exempt nine months. This means a higher chargeable gain. Moreover, no letting relief would be applied in this example.

Therefore, Mr Smith will have CGT bill of £14,700 (£52,500*0.28) - again assuming all his gain was taxed at 28% and assuming he has used his capital gains annual exemption elsewhere.

This represents an increased tax bill of £13,300 for Mr Smith.

For further information contact Nadia Laxman at or our Tax team at

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