Last updated: 16 October 2026
Why is HMRC questioning lettings relief claims?
HMRC writes to taxpayers who claimed lettings relief when selling a let property after 5 April 2020 but appear not to qualify. The rules changed on 6 April 2020, and many people, and some software, continued to claim under the old rules. HMRC usually asks you to amend your return and pay the extra capital gains tax (CGT), with interest.
Lettings relief before and after April 2020
| Feature | Before 6 April 2020 | From 6 April 2020 |
| Who qualifies | Owners who let out a former main home | Only owners who share occupation of the home with the tenant |
| Maximum relief | £40,000 per person | £40,000 per person |
| Typical case | You lived in a flat, moved out and let it | You lived in the home while a lodger or tenant lived there too |
Most people who let their former home after moving out no longer qualify.
Example
Sophie lived in her flat from 2012 to 2018, then let it until she sold it in 2026/27 with a gain of £140,000 over 14 years of ownership.
- Private Residence Relief covers the six years she lived there plus the final nine months: 6.75/14 of the gain, about £67,500.
- Remaining gain: about £72,500.
- Lettings relief: not available, because she did not live there while it was let.
- After her £3,000 annual exempt amount, about £69,500 is taxable at 18% or 24%.
Under the old rules, lettings relief would have reduced the gain by up to £40,000. If she had claimed it, HMRC would ask her to remove it.
What to do if you receive a letter
- Check whether you shared occupation with the tenant during the let period.
2. If you did not, amend your return within the time allowed, or tell HMRC the correct figures.
3. Pay the extra tax and interest at 7.75% a year.
4. If you think you do qualify, reply with evidence of shared occupation, such as tenancy agreements showing a lodger arrangement.
Correcting quickly limits interest and makes a penalty less likely. A careless error can still attract a penalty of up to 30% of the extra tax, reduced for prompt disclosure.
60-day reporting
UK residents must report and pay CGT on the sale of UK residential property within 60 days of completion. HMRC compares these returns with Land Registry data, which is how many incorrect lettings relief claims are spotted.
Ways to reduce CGT on a former home
- Final nine months of ownership are always exempt if it was your main home at some point.
- Spread ownership with a spouse before sale to use two annual exemptions and basic rate bands.
- Claim all allowable costs: purchase and sale fees, SDLT and capital improvements.
Frequently asked questions
Does a lodger count as shared occupation?
Yes, if you lived there at the same time.
Can I still claim lettings relief for years before 2020?
No. The test applies at the date of sale, not when the letting happened.
Is there a time limit for HMRC to correct my return?
Generally four years, or six for careless errors.
Can I claim PRR if I lived there only briefly?
Possibly, but HMRC looks at the quality of occupation, not just the length.
Related: section 222 election, exempting a buy-to-let from CGT and reporting residential property gains.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with capital gains tax on let property. See our landlord accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
