What Happens Tax Wise If I Live in a Property Before Selling It

Introduction

In the UK, when you sell a property that is not your main home, you may have to pay Capital Gains Tax on the profit. However, if the property becomes your main residence before you sell it, you may qualify for Private Residence Relief (PRR), which can reduce your taxable gain.

Many landlords and second homeowners move into their properties temporarily before selling to reduce their tax bill, but the timing and evidence of residence are important.

How Capital Gains Tax works on property

Capital Gains Tax is paid on the gain you make when selling a property, not on the total sale price. The gain is the difference between:

Sale price (Purchase price + Allowable costs)

Allowable costs include legal and estate agent fees, stamp duty, and the cost of improvements such as extensions or new kitchens.

For the 2024 25 tax year, the annual CGT exemption is £3,000, and the rates on property are:

18 percent for basic rate taxpayers.

24 percent for higher and additional rate taxpayers.

If the property is your main home, you can claim Private Residence Relief, which may reduce or eliminate the tax due.

What is Private Residence Relief (PRR)

Private Residence Relief exempts you from paying Capital Gains Tax on the part of the gain that relates to the time you lived in a property as your main residence.

To qualify for PRR, you must:

Have genuinely lived in the property as your main home.

Show that you intended it to be your permanent residence.

Use the property for normal domestic purposes (such as registering for council tax, utility bills, or your GP).

PRR covers the period you lived in the property plus the final nine months of ownership, even if you were not living there during that time.

Example

You bought a property in January 2015, lived in it until January 2020, then rented it out and sold it in January 2025.

You owned the property for 10 years, and it was your main home for 5 years. You can claim PRR for the 5 years you lived there plus the final 9 months, meaning 5 years and 9 months of ownership are exempt. You will only pay CGT on the remaining 4 years and 3 months of gain.

How long do you need to live in the property

There is no fixed minimum time you must live in a property to qualify for PRR, but HMRC expects your occupation to be genuine and demonstrable. Short-term stays that appear to be for tax purposes only are unlikely to qualify.

Evidence that supports genuine residence includes:

Registering to vote at the address.

Paying council tax and utility bills in your name.

Updating your driving licence and GP registration.

Moving your belongings and living there full time.

The longer you live in the property, the stronger your claim for PRR will be.

What happens if you only live there for a short time

If you live in the property for a brief period before selling, HMRC may question whether it truly became your main residence. However, even short periods of occupation can qualify for PRR if the intention to live there permanently was genuine but circumstances changed, such as a job relocation or a relationship breakdown.

If HMRC determines your occupation was temporary or artificial, it may deny relief, and you could still be liable for CGT on the full gain.

Letting Relief

If you lived in the property and later rented it out, you may also be eligible for Letting Relief.

Since 2020, Letting Relief only applies if you lived in the property at the same time as your tenants (for example, if you rented out a room in your main home). In these cases, you can claim up to £40,000 in relief (£80,000 for a couple).

If you moved out and rented the property fully, Letting Relief no longer applies, but PRR still covers the period you lived there.

Shared ownership between spouses or partners

If you own the property jointly with your spouse or civil partner, you can both claim PRR for the period it was your main home. Transfers between spouses are free from Capital Gains Tax, allowing you to share ownership before selling and make use of both annual CGT allowances (£3,000 each).

This can reduce the taxable gain and spread the tax liability across both partners.

Moving into a buy-to-let property before selling

If you own a buy-to-let property and move into it before selling, you can still claim PRR for the time you genuinely lived there.

However, you will only receive partial relief based on the proportion of time it was your main home. The rental period remains taxable, although you may still claim deductions for allowable costs.

Example

You owned a buy-to-let property for 12 years, rented it for 10 years, and lived in it for 2 years before selling. PRR applies for the 2 years you lived there plus the final 9 months, meaning roughly 2 years and 9 months are exempt. CGT applies to the remaining 9 years and 3 months of ownership.

Reducing Capital Gains Tax before selling

In addition to PRR, there are several other ways to reduce your CGT bill when selling property:

Offset losses from other assets, such as shares or crypto.

Time the sale to fall in a tax year when your income is lower, reducing your CGT rate.

Transfer ownership to your spouse or partner before selling to use both allowances.

Claim all allowable expenses, such as purchase costs, legal fees, and improvements.

If you are planning to sell property you have lived in, it is worth consulting a tax adviser to ensure you claim all available reliefs.

Reporting and paying Capital Gains Tax

If you sell a residential property and owe CGT, you must report and pay it to HMRC within 60 days of completion. You can do this through HMRC’s online Capital Gains Tax on UK Property service.

If you sell a property that qualifies for full PRR, you do not need to report it, as no tax is due.

For properties sold before April 2020, the reporting deadline was longer, so different rules may apply.

Example scenario

Lisa bought a flat in 2010 for £200,000, lived in it until 2018, and then rented it out before selling in 2024 for £400,000.

She owned the property for 14 years and lived there for 8.
PRR covers the 8 years she lived there plus the final 9 months, so roughly 8 years and 9 months are exempt.
Her taxable gain relates to the remaining 5 years and 3 months of ownership.

Allowable costs, such as £10,000 of improvements and £5,000 in fees, further reduce her taxable gain before applying CGT.

Common mistakes to avoid

Assuming short-term occupation automatically qualifies for PRR.

Forgetting to claim the final 9 months of relief.

Not keeping evidence of residence, such as council tax or utility bills.

Missing the 60-day CGT reporting deadline.

Confusing rental income tax with Capital Gains Tax on the sale.

Conclusion

Living in a property before selling it can significantly reduce your Capital Gains Tax bill if the occupation is genuine and properly documented. Private Residence Relief can exempt all or part of your gain, and timing your sale wisely can help you take full advantage of available allowances.

Before selling, review how long you have owned and lived in the property, gather evidence of residence, and seek advice if your circumstances are complex. A little planning can make a big difference to the amount of tax you ultimately pay.