Accidental landlords and CGT: how the PRR rule change in 2020 reshaped tax on the old home

When a planned upsize stalls — a chain collapses, a buyer pulls out, the second property completes before the first sells — the original home can quietly turn into a rental. For Capital Gains Tax purposes, that quiet switch can be expensive. Two changes made in Finance Act 2020 (sections 24 and 25) tightened the rules sharply: the Private Residence Relief (PRR) final-period exemption was reduced from 36 months to 9 months, and lettings relief was scrapped except where the owner physically shares the property with the tenant. Both changes apply to disposals on or after 6 April 2020 (HMRC HS283, 2024 update).

This piece walks through how the rules work today, with a worked example anchored to UK house-price index data showing a typical 2018-purchase, 2026-sale trajectory. It is a factual rules walk-through, not advice — speak to a qualified adviser before acting.

The two rules that changed in April 2020

The intent stated in the consultation response was to narrow PRR to "owner-occupiers", removing the substantial relief previously available to homeowners who became landlords (HM Treasury policy paper).

What residential CGT looks like in 2026

CGT rates on residential property gains have been 18% (basic-rate slice) and 24% (higher-rate slice) since 6 April 2024. The previous higher rate of 28% was cut by Finance (No. 2) Act 2024 (HMRC CGT rates).

The annual exempt amount (AEA) — the slice of total gains in the year on which no CGT is due — is £3,000 from 2024/25 onwards, down from £6,000 in 2023/24 and £12,300 in 2022/23 (HMRC AEA history).

Disposals must be reported and the tax paid within 60 days of completion, using the UK Property Disposal online service in your HMRC personal tax account (gov.uk: Report and pay CGT on UK property).

Worked example: £270,000 in 2018, £350,000 sale in 2026, 24 months let

The UK House Price Index stood at 79.3 in January 2018 and 102.7 in February 2026 — a nominal rise of roughly 29.5% across the eight-year window (ONS, UK HPI February 2026 release). A purchase at £270,000 in early 2018, tracking national HPI, would correspond to about £349,700 today. We round to £350,000 for the calculation.

Facts of the example

• Purchase: 1 January 2018 for £270,000 (main residence from day one)
• Owner-occupied as main home: 1 January 2018 – 31 December 2023 (72 months)
• Property let out: 1 January 2024 – 31 December 2025 (24 months)
• Sale: 1 January 2026 for £350,000
• Total ownership: 96 months
• Gross gain (ignoring acquisition/disposal costs): £80,000
• Owner is a single individual, no other gains in the year, higher-rate taxpayer

Step 1 — PRR-qualifying months

PRR exempts 81/96 of the gain: £80,000 × (81/96) = £67,500.

Step 2 — Chargeable gain before allowances

Chargeable gain = £80,000 × (15/96) = £12,500.

Pre-April-2020, the final-period exemption was 36 months. The same facts would have given 72 + 24 = 96 months of PRR (or as much as PRR could cover) — i.e. the entire gain exempt. The post-2020 rules turn the same disposal from a no-CGT event into a £12,500 chargeable gain.

Step 3 — Lettings relief

Under the post-2020 rules, lettings relief is not available here because the owner was not in shared occupation during the let period. Pre-April-2020 this scenario would have qualified for lettings relief of up to £40,000 (HMRC CG64710).

Step 4 — Annual exempt amount

The 2025/26 AEA is £3,000. Net chargeable gain = £12,500 − £3,000 = £9,500.

Step 5 — Tax

Higher-rate residential CGT is 24%. £9,500 × 24% = £2,280 payable, due within 60 days of completion.

If the same individual had been a basic-rate taxpayer with no other income pushing the gain into the higher band, the rate on the slice falling in the basic-rate band would be 18% — £1,710 in that scenario. In practice, large residential gains often push the chargeable slice into the higher band even for basic-rate earners; HMRC's worked example on HS283 shows the rate is applied to the taxable gain stacked on top of taxable income.

Where the numbers move

The example is national-average. The same calculation applied to a 2018 purchase in the North West, which has been the strongest-performing region (HPI 73.3 in January 2018 to 109.4 in February 2026, a 49.3% rise), produces a meaningfully larger gain. A £200,000 Manchester purchase in early 2018 tracking the regional index would correspond to roughly £298,500 today — a £98,500 gain. After PRR (81/96), the chargeable slice is £15,400; after the AEA, £12,400; at 24% that is £2,975. You can sense-check what comparable streets are paying using the Homecost postcode tool — try /?postcode=M1+1AE for central Manchester comparables.

By contrast, London HPI fell from 90.0 (January 2018) to 95.0 (February 2026), a 5.6% rise. The same arithmetic on a £500,000 London 2018 purchase implies a sale price of roughly £528,000 — a £28,000 gain, with a £4,375 chargeable slice and £1,050 of CGT at 24% after the AEA.

The traps that catch accidental landlords

1. The 60-day window is short and unfamiliar. Owners used to filing through self-assessment in January find the 60-day reporting requirement caught them off guard; HMRC published guidance and a dedicated digital service but late-filing penalties still apply.

2. The "period of occupation" test is fact-based. PRR depends on whether the property was the owner's only or main residence as a question of fact. Short periods of re-occupation between lets do not necessarily reset the clock; HMRC's manual at CG64427 covers the "quality of occupation" test and the case law (notably Goodwin v Curtis [1998] STC 475).

3. Lettings relief is gone for most accidental landlords. Unless the owner was physically resident with the tenant — a shared-occupation HMO or a lodger arrangement, for instance — lettings relief does not apply. This is the change that bites hardest on owners who moved out and let the old home.

4. Improvement costs and selling costs reduce the gross gain. Capital improvements (extensions, kitchens replaced with materially better fittings, not repairs) and agent/legal fees on disposal reduce the gross gain before the PRR ratio is applied (HMRC CG14200). Keeping receipts matters.

5. Joint owners each get the AEA but face the same proportions. Two joint owners each get a £3,000 AEA against their half-share of the gain. The 81/96 PRR ratio applies to each owner's share assuming both lived there for the same periods. Where one owner moved out earlier — for instance, a separating couple — the periods can diverge.

When the "9-month final period" still helps

Even with the cut, the final-period rule remains useful in two common scenarios:

• Sale-of-old-home falls behind purchase-of-new-home. Where the old home has been listed but not yet sold while the owner moves into the new one, the final 9 months are treated as PPR even though the owner no longer lives there.
• Probate / executor disposals. Personal representatives can use the 9-month final-period rule where the deceased's home is disposed of, subject to detailed conditions in HMRC CG65030.

What the rule does not do is bail out a homeowner who lets the property for an extended period before selling — the relief is capped at the last 9 months of ownership.

How this fits the wider PRR picture

PRR is the most widely-claimed CGT relief in the UK: HMRC's most recent published estimate puts the un-quantified relief at "by far the largest" of the residential-property reliefs, costing well in excess of any other (HMRC Tax Relief Statistics, December 2024 update). The 2020 narrowing was estimated by HM Treasury to raise approximately £150 million per year by 2024/25.

For a forensic look at the fact-pattern cases where PRR is refused — most commonly because the owner did not establish the property as their only or main residence — see CGT and Private Residence Relief refused claims: 2026 case patterns. If the upsize-and-let trajectory was intentional rather than accidental, the cost stack on a buy-to-let property sets out what changes once the property is acquired as an investment rather than a home.

Quick reference

Based on 30.98 million Land Registry transactions and the ONS UK House Price Index back to January 1995 — see the Homecost blog for the full library of cost-intelligence pieces.

This is general information about how Private Residence Relief and Capital Gains Tax interact for residential property in the UK, not personal tax advice. Reliefs depend on individual fact patterns and HMRC's interpretation of "main residence" can be contested. Speak to a qualified tax adviser before acting on a disposal.