Letting Relief is now only available to landlords who live in the same property as their tenants, so you'd have to be a latter-day Rigsby (from the 1970s TV show Rising Damp) to make any use of it. People with lodgers can also claim it, but they should be exempt from CGT anyway unless they have more than 1 lodger at a time. The rules are not always clearcut, but in those circumstances, HMRC may consider the owners were running a letting business, so they would not be able to claim main residence relief on the whole capital gain. It would have to be restricted according to the amount of space let out and the duration of the lettings.
Assuming that you can claim it, how does Letting Relief work? It is always the smallest of the following 3 figures:
- the chargeable gain (attributable to lettings)
- the exempt gain (attributable to PPR relief)
- £40,000 per owner
Letting relief is deducted from the net gain after claiming Main Residence Relief. For those who can still claim Letting Relief, it can substantially reduce or even extinguish the entire taxable gain, so it is a very valuable relief. It may not be worth sharing the house with your tenants, however, and as stated above, having lodgers is normally exempt anyway.
