Private Residence Relief (Detailed)

Key facts

PRR exempts gains on your main residence from CGT — but only for periods of actual or deemed occupation.
The final 9 months of ownership are always treated as deemed occupation (regardless of whether you live there).
Up to 3 years of absence for any reason can qualify as deemed occupation, provided you return to live in the property.
Lettings relief (up to £40,000) now only applies if you share occupation with the tenant.
If you own two homes, you can nominate which is your main residence within 2 years.

How PRR Works

Private Residence Relief (PRR) exempts all or part of the gain on a property that has been your only or main residence. The relief is calculated by reference to the proportion of your ownership period during which the property qualifies as your residence.^[1]

The basic formula is:

Exempt gain = Total gain × (qualifying months ÷ total months of ownership)

If you lived in the property as your only residence for the entire period of ownership, the gain is 100% exempt and there is nothing to report. Complications arise when there are periods of absence, business use, or multiple residences.

Qualifying Periods of Absence

Certain periods when you were not living in the property can still count as “deemed occupation” for PRR purposes, provided you lived in the property as your main residence both before and after the absence (the “bracketing” rule):^[2]

Type of Absence	Maximum Period	Conditions
Any reason whatsoever	3 years (total, not per absence)	Must return to live in the property afterwards
Working elsewhere in the UK (employer required)	Unlimited	Must be employment (not self-employment); employer must require the relocation
Working overseas	Unlimited	All overseas employment qualifies; can be employed or self-employed

These allowable absences can be used in any order and can be combined. For example, you could be absent for 3 years for any reason, then work overseas for 5 years, then return — all 8 years would count as deemed occupation.

Tip: The requirement to return to the property (“bracketing”) is relaxed if the reason you did not return was that your employer required you to work elsewhere. In that case, the periods of absence still qualify even if you did not physically return to the property.

The Final Period Exemption

The last 9 months of ownership always count as deemed occupation, regardless of whether you were living in the property. You only need to have lived there at some point during ownership.^[3]

The final period was 36 months until April 2014, then 18 months until April 2020, and is now 9 months. An extended final period of 36 months still applies if:

You are disabled (as defined for disability-related benefits)
You are a long-term resident of a care home

The final period exemption is particularly useful when you have already moved into a new home but have not yet sold your previous one.

Lettings Relief

Lettings relief provides an additional exemption of up to £40,000 per person (£80,000 for a couple) when a qualifying property has been let as residential accommodation. However, since 6 April 2020, lettings relief only applies where you share occupation with the tenant.^[4]

This means lettings relief is now only relevant for lodger arrangements where a tenant lives in your home alongside you. Letting out the entire property while you live elsewhere — which was previously the most common use of lettings relief — no longer qualifies.

Where it does apply, the relief is the lowest of:

The amount of PRR already available
The gain attributable to the letting period
£40,000

Two Residences and Nominations

If you have two or more properties that could be your main residence, you can nominate which one qualifies for PRR. The nomination must be made in writing to HMRC:^[1]

Within 2 years of acquiring the second property (or 2 years of any change in your combination of residences)
A nomination can be changed at any time — the new nomination takes effect from the date of the change
If no nomination is made, HMRC will determine which property is your main residence based on the facts

Tip: A common planning strategy is to nominate a second property (e.g. a buy-to-let or holiday home) as your main residence for a short period, then switch back. This secures PRR for that period and the final 9-month exemption. However, HMRC can challenge nominations that do not reflect genuine use of the property as a residence.

Business Use of the Home

If part of your home is used exclusively for business purposes, that part does not qualify for PRR. The gain must be apportioned between the residential and business-use portions.^[2]

However, if you use a room for business during the day but it reverts to domestic use in the evening (e.g. a spare bedroom used as an office), this is not exclusive business use and PRR is not restricted. The key word is “exclusively” — a dedicated workshop or consulting room would restrict PRR, but a multi-purpose room would not.

Garden and Grounds

PRR extends to the garden and grounds of the property, up to a total area (including the site of the house) of 0.5 hectares (approximately 1.24 acres).^[3]

Larger grounds may qualify if they are “required for the reasonable enjoyment of the dwelling-house” having regard to its size and character. HMRC interprets this restrictively — a modest house on extensive grounds is unlikely to qualify for relief on the excess land.

If you sell part of the garden separately (for example, for development), that part disposal is treated independently and may not benefit from PRR if the garden has already been separated from the dwelling at the time of sale.

Worked Example

Emma owned a property for 15 years (180 months). She lived in it for the first 5 years (60 months), then moved overseas for work for 4 years (48 months), then let it out for the remaining 6 years (72 months).

Period	Months	PRR Status
Actual occupation	60	Qualifying (actual)
Working overseas	48	Qualifying (deemed — overseas employment)
Letting (final 9 months covered by final period)	63	Non-qualifying
Final 9 months	9	Qualifying (final period)
Total qualifying	117 of 180	65% exempt

If Emma’s total gain was £300,000, the exempt portion would be £195,000 (65%), leaving £105,000 chargeable.

Frequently Asked Questions

Do I get PRR on a property I never lived in?

No. You must have lived in the property as your main residence at some point to qualify for any PRR. The only exception is certain job-related accommodation rules where you are required to live elsewhere for work.

What is the final period exemption?

The last 9 months of ownership always qualify for PRR, regardless of whether you are living in the property at that time. This was reduced from 18 months from April 2020. For disabled persons and those in care homes, the final period remains 36 months.

Can I claim lettings relief if I rent out the whole property?

Not since April 2020. Lettings relief now only applies if you share occupation with the tenant (e.g. a lodger living in your home). Letting out the entire property while you live elsewhere no longer qualifies.

How do I nominate my main residence?

You must notify HMRC in writing within 2 years of acquiring the second property (or within 2 years of any change in combination of residences). The nomination can be changed at any time and takes effect from the date of the new nomination.

Does garden and grounds qualify for PRR?

Yes, up to 0.5 hectares (about 1.24 acres) including the site of the house. Larger grounds may qualify if they are required for the reasonable enjoyment of the property, having regard to its size and character — but this is often disputed by HMRC.

Sources

Private Residence Relief — GOV.UK
Capital Gains Manual: private residence relief — HMRC
HS283 Private Residence Relief — HMRC
Tax when you sell your home — GOV.UK