Plenty of landlords fall into buy-to-let by accident. You buy a flat, live in it for a few years, then move on and let it out rather than sell. Years later, when you finally do sell, capital gains tax lands on the whole increase in value, and the bill can look alarming.
The good news is that a property which was once your home is treated far more kindly than one you only ever rented out. Two reliefs do the work: private residence relief, and, in narrower circumstances now, letting relief. Here is how each one applies for 2026/27, with a worked example so you can see the mechanics.
The problem the reliefs solve
When you sell a property that is not your main home, capital gains tax (CGT) applies to the gain, which is broadly the sale price less what you paid, less your buying and selling costs and any capital improvements. On residential property the rates are 18% on any part of the gain that falls within your unused basic-rate income band, and 24% on the rest.
If the property was purely an investment, that is roughly the end of the story. But if you lived in it as your only or main home at any point, the reliefs below can remove a large slice of the gain from tax altogether. HMRC sets it all out in the Private Residence Relief helpsheet (HS283).
Private residence relief (PRR)
Private residence relief exempts the part of the gain that relates to the time the property was your only or main residence. The mechanism is time-apportionment: you work out the total gain, then multiply it by the fraction of your ownership period during which the property was your home.
So if you owned a property for ten years and lived in it as your main home for four of them, roughly four-tenths of the gain is exempt straight away, and the remaining six-tenths is the part CGT is charged on. The relief is automatic on your main home and does not need to be claimed in advance, though you report the disposal when you sell. The general rules for a home you have let are summarised on the Tax when you sell your home page.
The final period exemption
On top of the actual period of occupation, the last part of your ownership always qualifies for relief, provided the property was your main residence at some point. This is the final period exemption.
The length has been cut twice. It was 36 months for many years, reduced to 18 months from April 2014, and cut again to 9 months from April 2020. For 2026/27 it remains 9 months. So the months you genuinely lived there, plus the final nine months of ownership whether or not you were living in the property, both come out of the taxable gain.
Letting relief
Letting relief can reduce the remaining, chargeable part of the gain by up to £40,000 per owner, so up to £80,000 for a couple who own the property jointly. On paper that is a substantial sum, and it is why the relief still gets talked about a great deal.
The catch is that the rules changed sharply on 6 April 2020. Since that date, letting relief only applies where you shared occupation of the home with your tenant, in other words a lodger arrangement where you were living in the property at the same time as the person renting a room. If you moved out entirely and let the whole property while living elsewhere, which is the usual buy-to-let situation, letting relief no longer applies at all.
This is the change many landlords miss. Guidance and rules of thumb written before 2020 assumed letting relief was available on any former home that had been rented out. For most modern lettings, it is not. Assume it does not apply unless you genuinely lived alongside a lodger.
A worked example
Tom buys a flat in early 2015 for £200,000, with £4,000 of buying costs. He lives in it as his only home for four years, then moves in with a partner and lets the whole flat out. He sells it twelve years after buying, in early 2027, for £360,000, paying £6,000 in estate agent and legal fees.
His gain before relief:
| Item | Amount |
|---|---|
| Sale price | £360,000 |
| Less selling costs | -£6,000 |
| Less purchase price | -£200,000 |
| Less buying costs | -£4,000 |
| Gain before relief | £150,000 |
He owned the flat for 12 years, which is 144 months. It was his main home for 48 months, and the final period exemption adds 9 months, so 57 months qualify for private residence relief.
- PRR = £150,000 x 57/144 = £59,375
- Gain after PRR = £150,000 - £59,375 = £90,625
Letting relief does not apply here, because Tom let the whole flat out after he moved elsewhere rather than sharing it with a lodger. So the next step is the annual exempt amount.
- Less the annual exempt amount = -£3,000
- Taxable gain = £87,625
If Tom is a higher-rate taxpayer, the whole £87,625 is taxed at 24%, giving £21,030. If instead £12,000 of his basic-rate band were unused, that slice would be taxed at 18% (£2,160) and the remaining £75,625 at 24% (£18,150), a total of £20,310.
Had Tom never lived in the flat, there would be no private residence relief, and almost the entire £150,000 gain would be taxable. The four years he spent living there, plus the final nine months, saved him roughly £14,000 in tax.
Practical notes for 2026/27
A few figures and deadlines are worth pinning down before you sell:
- The annual exempt amount is £3,000 per person for 2026/27. Owning a property jointly with a spouse or civil partner gives you two allowances and can use two sets of basic-rate band.
- You must report and pay the CGT within 60 days of completion on a UK residential property sale, using a Capital Gains Tax on UK property account. This is separate from your Self Assessment return, and missing it triggers an automatic penalty plus interest. The process is set out on Report and pay Capital Gains Tax on UK property.
- Keep evidence of every cost. Buying and selling fees and genuine capital improvements only reduce the gain if you can show what you spent.
To sketch out your own numbers before you commit, the capital gains tax calculator lets you plug in dates and figures, and our fuller guide to capital gains tax when you sell a buy-to-let walks through the 18/24 rates and the 60-day clock in more detail.
This is general information, not personal tax advice. Private residence relief and letting relief interact with the exact dates you lived in and let the property, joint ownership, and your wider income, so check the current gov.uk guidance or speak to an accountant before you sell.
