Do You Pay Capital Gains Tax On Your Primary Residence?
- Adil Akhtar
- Jun 12
- 15 min read

The Audio Summary of the Key Points of the Article:
Understanding Capital Gains Tax and Your Primary Residence in the UK
Right, let’s get straight to the point: do you pay Capital Gains Tax (CGT) on your primary residence in the UK? In most cases, the answer is a firm no, thanks to a handy relief called Private Residence Relief (PRR). But, as with anything tax-related, there are some twists and turns you need to know about to avoid getting caught out. This first part will break down the basics of CGT, how PRR works, and when you might still face a tax bill, all tailored for UK taxpayers and business owners as of the 2025/26 tax year.
What Is Capital Gains Tax, Anyway?
Let’s start with the basics: CGT is a tax you pay on the profit (or “gain”) you make when you sell or dispose of an asset that’s increased in value. Think selling a second home, shares, or even a fancy painting. The tax isn’t on the total sale price but on the profit after deducting what you paid for it, plus any allowable costs like legal fees or improvements. For the 2025/26 tax year, every individual gets an annual exempt amount of £3,000, meaning you can make gains up to that amount tax-free. Couples who jointly own assets can combine this, giving a £6,000 tax-free allowance. But here’s the kicker: if your primary residence qualifies for PRR, you might not need to worry about CGT at all.
Private Residence Relief: Your Get-Out-of-CGT-Free Card
Now, here’s where it gets good. If you sell your primary residence—your main home—you’re usually exempt from CGT because of Private Residence Relief. For PRR to apply fully, a few conditions need to be met:
The property must be your only or main home for the entire time you’ve owned it.
You haven’t let out part of it (though having a single lodger is fine).
You haven’t used part of the home exclusively for business purposes (a home office for occasional work doesn’t count).
The grounds, including all buildings, are less than 5,000 square metres (about 1.2 acres).
If these boxes are ticked, you’re in the clear—no CGT to pay. HMRC is pretty clear on this, and you can check the full details on their site (www.gov.uk/tax-sell-home). But life’s rarely that simple, so let’s dig into when things get murky.

When Might You Pay CGT on Your Main Home?
Be careful! Even if you think a property is your primary residence, certain situations could land you with a CGT bill. Here are some common scenarios where PRR might not fully apply:
You’ve let out part of your home: If you’ve rented out a room or section of your house (beyond a single lodger), you might lose some PRR. However, Lettings Relief can help, offering up to £40,000 (£80,000 for couples) if you’ve shared occupancy with tenants. This relief is only available if you live in the property at the same time as your tenants.
You’ve used part of the home for business: If you’ve got a dedicated office or workshop used solely for business, that portion of the gain might be taxable. For example, if Dilip, a freelance graphic designer, uses one room of his London flat exclusively for client meetings, that room’s value might not qualify for PRR.
You’ve moved out for a while: PRR covers the time you live in the property, plus the final 9 months of ownership, even if you’re not living there. If you’ve been away longer—say, living with a partner or working abroad—you might owe CGT for the period you weren’t living there. For those with disabilities or in care homes, this exemption extends to 36 months.
You own multiple properties: If you’ve got more than one home, you need to nominate which one is your main residence for PRR. You’ve got two years from acquiring a second property to tell HMRC (www.gov.uk/tax-sell-home). For example, if Ayesha buys a cottage in Cornwall while keeping her Manchester flat, she needs to decide which one gets PRR.

How CGT Rates Work in 2025/26
Let’s talk numbers. If you do end up with a taxable gain, the CGT rates for 2025/26 depend on your income tax band and the type of asset. For residential property (like a second home or a partially taxable main home), the rates are:
18% for basic rate taxpayers (if your taxable income plus gains is within the £37,700 basic rate band).
24% for higher or additional rate taxpayers (above £37,700).
Here’s a quick example to make it clear. Say Priya sells her flat, which she lived in for 5 out of 10 years of ownership. She makes a £50,000 gain. Because she only lived there for half the time, PRR covers 50% of the gain (£25,000), plus the final 9 months (7.5% of the ownership period, or £3,750). So, £28,750 is exempt, leaving £21,250 taxable. After the £3,000 annual exempt amount, £18,250 is taxed. If Priya’s taxable income is £20,000, her total income plus gain (£38,250) pushes her just over the basic rate band. She’d pay 18% on the portion within the basic rate band and 24% on the rest.
Table 1: CGT Rates and Allowances for 2025/26
Category | Details |
Annual Exempt Amount | £3,000 per individual (£6,000 for couples jointly owning assets) |
Basic Rate CGT (Residential) | 18% (if income + gain ≤ £37,700) |
Higher Rate CGT (Residential) | 24% (if income + gain > £37,700) |
Reporting Deadline | 60 days from completion for residential property sales |
PRR Final Exemption Period | 9 months (36 months for disabled or care home residents) |
Source: HMRC, Capital Gains Tax Rates, www.gov.uk/capital-gains-tax/rates (verified as of June 2025).
Real-Life Case Study: The Accidental Landlord
Now, consider this: If you’ve ever rented out your main home, you might be in for a surprise. Take Ewan, a business owner from Bristol. In 2023, he moved to London for work and rented out his Bristol house for two years before selling it in 2025 for a £60,000 gain. Ewan lived in the house for 8 out of 10 years, so PRR covers 80% of the ownership period (£48,000), plus the final 9 months (£4,500). That leaves £7,500 taxable. After his £3,000 annual exempt amount, £4,500 is taxed at 18% (since he’s a basic rate taxpayer), resulting in a CGT bill of £810. If Ewan had shared the property with tenants, he could’ve claimed Lettings Relief to wipe out this bill entirely.
Exceptions to Private Residence Relief and Strategic Tax Planning
Now, let’s get into the nitty-gritty of when Private Residence Relief (PRR) doesn’t fully shield you from Capital Gains Tax (CGT) on your primary residence. The rules around PRR can trip up even the savviest UK taxpayers or business owners, especially if your living situation isn’t straightforward. This part dives deep into the exceptions to PRR, explores practical strategies to minimise your CGT liability, and offers actionable advice for navigating complex scenarios, all tailored for the 2025/26 tax year.
When PRR Doesn’t Apply: The Key Exceptions
None of us is a tax expert, but understanding the exceptions to PRR is crucial to avoid unexpected tax bills. Here are the main situations where PRR might not cover your entire gain, with detailed analysis to help you stay ahead:
Living Elsewhere for Extended Periods
So, the question is: what happens if you haven’t lived in your home for the whole time you’ve owned it? PRR only fully applies for the periods you actually live in the property as your main home, plus the final 9 months of ownership (or 36 months if you’re disabled or in a care home). If you’ve been away longer, the non-resident periods could be taxable. For example, if Niamh, a marketing consultant, buys a house in Leeds in 2015, lives there for 5 years, then moves to Edinburgh for work for 5 years before selling in 2025, only 50% of her ownership period (plus the final 9 months) qualifies for PRR. If she makes a £80,000 gain, roughly £36,000 might be taxable after her £3,000 annual exempt amount.
But here’s a silver lining: certain absences are deemed occupation periods, meaning they still count for PRR if you return to the property afterward or don’t own another main home. These include:
Working abroad for any length of time (if you’re employed or self-employed).
Up to 4 years for work-related moves within the UK (e.g., relocating for a job).
Up to 3 years for any other reason (like caring for a relative).
For instance, if Niamh’s 5-year absence was due to working abroad, and she returned to the Leeds house before selling, the entire period could qualify for PRR, wiping out her CGT liability.
Letting Out Your Home
Be careful! Renting out your main home can complicate things. If you’ve let out all or part of your property, the gain for the letting period might not qualify for PRR. However, Lettings Relief can save the day if you’ve shared occupancy with your tenants. This relief caps at the lower of:
£40,000 (£80,000 for couples).
The amount of PRR you’re entitled to.
The gain attributable to the letting period.
Take Sunita, who owns a Birmingham flat. She lives there for 6 years, then rents it out for 4 years before selling in 2025 for a £100,000 gain. PRR covers 60% of the ownership period (£60,000), plus the final 9 months (£7,500), leaving £32,500 potentially taxable. If she shared the flat with tenants, she could claim Lettings Relief up to £32,500 (the gain from letting), reducing her taxable gain to zero after the £3,000 annual exempt amount. Without shared occupancy, she’d owe CGT on £29,500 at 18% or 24%, depending on her income.
Using Part of Your Home for Business
Now, consider this: If you’re a business owner using part of your home exclusively for work, that portion’s gain might not qualify for PRR. For example, if Idris, a carpenter in Cardiff, converts his garage into a workshop for his business, the garage’s value (say, 10% of the property) could be taxable when he sells. If his total gain is £50,000, £5,000 might be taxed after the annual exempt amount. The key here is “exclusive use”—a spare room used for occasional Zoom calls doesn’t count, but a dedicated business space might.
Multiple Properties and Nominating Your Main Residence
Here’s a tricky one: If you own more than one home, you need to tell HMRC which one is your main residence for PRR within two years of acquiring a second property. This is critical for couples or business owners with holiday homes or investment properties. For example, if Zara and her partner own a London flat and a Cotswolds cottage, they must nominate one as their main home. If they don’t, HMRC will decide based on where they spend most of their time, which might not align with their plans. You can change your nomination later, but it only takes effect from the date HMRC is notified (www.gov.uk/tax-sell-home).
Strategies to Minimise Your CGT Liability
Now, it shouldn’t be a surprise that there are ways to reduce or even eliminate your CGT bill. Here are some practical strategies, grounded in HMRC rules, to keep more money in your pocket:
Time Your Sale Carefully: Selling within the final 9-month PRR exemption period can boost your relief. For example, if you’ve moved out, try to sell within 9 months to ensure the entire gain qualifies.
Maximise Lettings Relief: If you’ve let out your home, live with your tenants for part of the time to qualify for Lettings Relief. Even a short period of shared occupancy can unlock up to £40,000 in relief.
Use Your Annual Exempt Amount: Plan asset sales across tax years to use your £3,000 exemption each year. For couples, transferring ownership to share gains can double this to £6,000.
Offset Losses: If you’ve made losses on other assets (like shares), you can offset these against your property gains to reduce your taxable amount. Report losses to HMRC within 4 years of the tax year they occurred.
Consider Spousal Transfers: Transferring part of the property to your spouse or civil partner before selling can use both partners’ annual exempt amounts and lower tax bands. Transfers between spouses are tax-free, making this a smart move for higher earners.
Table 2: Key PRR Exceptions and Mitigating Strategies
Exception | Impact on PRR | Mitigating Strategy |
Extended Absences | Non-resident periods taxable unless deemed occupation | Return to property or qualify for deemed occupation |
Letting Out Property | Letting period gain taxable | Share occupancy for Lettings Relief |
Business Use | Business portion’s gain taxable | Limit exclusive business use |
Multiple Properties | Only one property qualifies for PRR | Nominate main residence within 2 years |
Source: HMRC, Private Residence Relief, www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet (verified as of June 2025).
Case Study: The Job-Related Move
Let’s look at a real-world example. In 2023, Kwame, a software developer, buys a house in Manchester for £250,000. He lives there for 2 years, then relocates to Cambridge for a job in 2025, renting out the Manchester house. He sells it in 2025 for £350,000, making a £100,000 gain. Kwame lived there for 2 out of 4 years, so PRR covers 50% (£50,000), plus the final 9 months (£12,500). The taxable gain is £37,500. After the £3,000 exemption, £34,500 is taxed. As a higher rate taxpayer, Kwame owes £8,280 (24% of £34,500). If his Cambridge move qualified as a job-related absence (e.g., employer-required relocation), the 2-year absence could count as deemed occupation, making the entire gain tax-free.
Step-by-Step Guide: Checking Your PRR Eligibility
Right, let’s make this practical. Here’s a step-by-step guide to assess whether your home sale qualifies for full PRR:
Determine Ownership Periods: Calculate how long you’ve owned the property and the periods you lived there as your main home.
Check for Deemed Occupation: Identify any absences that qualify (e.g., work abroad, up to 4 years for UK job moves).
Assess Letting or Business Use: Note any periods you rented out the property or used part of it exclusively for business.
Calculate PRR Coverage: Add the time you lived there, deemed occupation periods, and the final 9 months (or 36 months if applicable).
Estimate Taxable Gain: Subtract PRR-covered gain and the £3,000 annual exempt amount from your total gain.
Apply Lettings Relief (if eligible): If you shared occupancy with tenants, reduce the taxable gain by up to £40,000.
Report to HMRC: File a CGT return within 60 days of completion via www.gov.uk/report-and-pay-your-capital-gains-tax.
This guide can help you avoid surprises and plan your sale strategically.

Summary of Key Points for UK Taxpayers on Capital Gains Tax and Primary Residences
So, we’ve covered a lot of ground on whether you pay Capital Gains Tax (CGT) on your primary residence in the UK. To wrap things up, this part distils the most critical insights into a concise summary, ensuring you walk away with clear, actionable takeaways. Whether you’re a homeowner or a business owner, these points will help you navigate the tax landscape with confidence in the 2025/26 tax year.
Summary of the Most Important Points
Private Residence Relief (PRR) usually exempts your primary residence from CGT if it’s been your only or main home throughout your ownership, provided you haven’t let it out or used it exclusively for business.
The final 9 months of ownership are always covered by PRR, even if you’ve moved out, extending to 36 months for those with disabilities or in care homes.
Extended absences can still qualify for PRR if they’re due to working abroad, up to 4 years for UK job-related moves, or up to 3 years for other reasons, as long as you return to the property or don’t claim another main home.
Letting out your home may reduce PRR, but Lettings Relief can offset up to £40,000 (£80,000 for couples) of the taxable gain if you’ve shared occupancy with tenants.
Using part of your home exclusively for business makes that portion’s gain taxable, though occasional home office use doesn’t affect PRR eligibility.
Owning multiple properties requires nominating your main residence within two years of acquiring a second home to secure PRR, with changes possible via HMRC notification.
CGT rates for residential property in 2025/26 are 18% for basic rate taxpayers and 24% for higher or additional rate taxpayers, applied after the £3,000 annual exempt amount.
Strategies like timing your sale, maximising Lettings Relief, or transferring assets to a spouse can significantly reduce or eliminate your CGT liability.
Losses from other assets can offset taxable gains, and couples can double their annual exempt amount to £6,000 by sharing ownership.
CGT on property sales must be reported to HMRC within 60 days, with a step-by-step eligibility check helping you calculate your PRR and taxable gain accurately.
This summary ties together the essentials, giving you a quick reference to make informed decisions about your primary residence and CGT. Always double-check with HMRC or a tax advisor for your specific situation, as the rules can get tricky fast.
FAQs
**1. Q: Can you claim Private Residence Relief if you inherit a property and sell it?**
A: If you inherit a property and it becomes your main home, you can claim PRR for the time you live there, but not for the period before you inherited it or if you never live there.
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**2. Q: How does CGT apply if you sell your primary residence to a family member?**
A: Selling to a family member at market value follows standard PRR rules, but selling below market value may trigger CGT on the deemed market gain.
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**3. Q: Do you pay CGT if you convert your primary residence into a rental property before selling?**
A: If you convert it to a rental and no longer live there, PRR covers only the period you lived there, plus the final 9 months, with the rest potentially taxable.
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**4. Q: Can you claim PRR on a property you’ve never lived in but own?**
A: No, PRR only applies to properties you’ve lived in as your main home for at least part of the ownership period.
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**5. Q: How does CGT work if you renovate your primary residence before selling?**
A: Renovation costs can be deducted from the gain as allowable expenses, reducing your CGT liability if PRR doesn’t fully apply.
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**6. Q: Do you pay CGT if you sell your primary residence after moving into a partner’s home?**
A: If you move out and it’s no longer your main home, PRR covers the time you lived there plus the final 9 months, with other periods potentially taxable.
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**7. Q: Can you claim PRR if you’re separated and no longer live in the family home?**
A: If you’ve moved out due to separation, PRR may still apply for your ownership period if you haven’t nominated another main home.
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**8. Q: How does CGT apply if you sell a primary residence owned by a trust?**
A: Trusts don’t qualify for PRR unless the beneficiary lives in the property as their main home, with CGT at 24% on taxable gains.
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**9. Q: Do you need to pay CGT if you gift your primary residence to your children?**
A: Gifting is treated as a disposal at market value, so CGT may apply if PRR doesn’t cover the entire gain.
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**10. Q: Can you claim PRR if you live in a property owned by your spouse?**
A: If you live in a property owned solely by your spouse, you can’t claim PRR, but your spouse can for their ownership period.
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**11. Q: How does CGT apply if you sell your primary residence after living abroad temporarily?**
A: Periods abroad for work can qualify as deemed occupation for PRR if you return, potentially exempting the entire gain.
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**12. Q: Do you pay CGT if you sell a primary residence with a large garden?**
A: If the garden exceeds 5,000 square metres, the excess land’s gain may be taxable, even if the house qualifies for PRR.
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**13. Q: Can you claim PRR if you rent out a room under the Rent-a-Room Scheme?**
A: Renting out a room under the Rent-a-Room Scheme doesn’t affect PRR, as long as you still live in the property.
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**14. Q: How does CGT apply if you sell your primary residence after a divorce?**
A: Post-divorce, PRR applies for the time you lived there, but transfers to an ex-spouse within 9 months may avoid CGT.
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**15. Q: Do you pay CGT if you sell your primary residence to pay off debts?**
A: The reason for selling doesn’t affect CGT; PRR applies as normal based on your occupancy and other eligibility criteria.
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**16. Q: Can you claim PRR on a property you’ve used as a holiday home part-time?**
A: If it’s not your main home, PRR doesn’t apply, but you can nominate it as your main residence if you live there sometimes.
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**17. Q: How does CGT apply if you sell a primary residence you’ve partly converted into flats?**
A: If you live in one flat as your main home, PRR applies to that portion, but gains on other flats may be taxable.
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**18. Q: Do you pay CGT if you sell your primary residence after inheriting it from your spouse?**
A: If you inherit from your spouse and live there as your main home, PRR applies for your occupancy period post-inheritance.
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**19. Q: Can you claim PRR if you sell your primary residence but keep part of the land?**
A: PRR applies to the house and grounds sold, but retaining land may trigger CGT on its gain if sold separately.
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**20. Q: How does CGT apply if you sell your primary residence to a developer?**
A: Selling to a developer follows standard PRR rules, with any taxable gain based on periods not covered by PRR.
The Author:

Adil Akhtar, ACMA, CGMA, CEO and Chief Accountant of Pro Tax Accountant, is an esteemed tax blog writer with over 10 years of expertise in navigating complex tax matters. For more than three years, his insightful blogs have empowered UK taxpayers with clear, actionable advice. Leading Advantax Accountants as well, Adil blends technical prowess with a passion for demystifying finance, cementing his reputation as a trusted authority in tax education.
Email: adilacma@icloud.com
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