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TAX TIP TUESDAY: Will I Need to Pay Capital Gains Tax When I Sell My Home if I Have Had Lodgers?

Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.


This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice. 


A large house can sometimes feel lonely, or be expensive to run, and if you have the space then taking in lodgers can help bring in a bit of extra income for you. But be aware that if you have in the past rented out a room to lodgers, then you may need to pay Capital Gains Tax when you sell.


The proportion of the property that you rent out could be subject to CGT

The difference in paying CGT comes with the number of lodgers you’ve rented a portion of your home out to.

How does this work?

When you come to sell your property, the gain that is taxed depends on what percentage of your home was let and for how long for:

  • If you have had only one lodger at a time then you’ll be allowed to claim Private Residence Relief, and will not have to pay CGT on your property.
  • If you’ve had two or more lodgers at the same time, then when you come to sell your home, the gain on the part of your home that is used for letting is liable to CGT because you will have had two lodgers.

Having a single lodger does not count as letting your home for business purposes whereas having two or more does.


Lettings Relief

You may be able to claim Lettings Relief against the Capital Gains Tax, on the part of the house that was let. This applies only if the let portion of the property is still classed as being part of the main house, and hasn’t, for example, been converted into a self-contained flat.


Rent a Room relief scheme

Rent a room relief allows you to rent out a room in your home and keep up to £7,500 in rental income tax-free. You’ll only need to pay tax on the amount over £7,500.

Do be aware though, that you can’t claim for any extra expenses related to letting the room – so if you have to spend money on fixing wear and tear issues, you will need to pay the full cost and can’t claim any tax back.


Joint ownership and tax free money

If you and your partner own the house, then the £7,500 a year tax-free money will be split between you to a total of £3,750 tax-free each.

Gov.uk has a detailed guide on letting rooms out and how tax is applied.


Notify your mortgage lender and speak to your financial adviser

Renting out a room in your home can provide you with a great boost to your income, but make sure you play by the rules. You need to notify your mortgage lender and any insurance providers you have.

It can be confusing to work out whether you need to pay CGT and how much, so speak to a trusted IFA who can make sure you follow the taxation guidelines and can give you the best advice to suit your property and tax goals. Contact the Dental & Medical Financial Services team to discuss your situation.


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