Downsizing to a smaller property that is easier to manage can be a good option for those who are at retirement as a smaller house is cheaper to run and less effort to maintain.
Are you downsizing to raise capital?
There are many reasons why people consider downsizing their house as they get older. Some people would prefer a smaller house and more money in the bank to spend when they retire. Others may find that the family home is too big or costly for them to run and maintain.
Some people choose to downsize in order to release a large lump sum of cash to support themselves in retirement or to gift to their loved ones.
Downsizing at retirement
The majority of downsizers are aged around 65 and are worried about maintaining the property and garden. Large family homes often have large council tax and energy bills.
You may be able to completely pay off a smaller property and release a large lump sum.
Downsizing following a relationship change
Divorce or separation is never easy but it can bring significant changes to your finances.
Most newly-single individuals downsizes for economic reasons. A financial adviser can help to understand your options and the long-term implications on your financial security.
What are the downsides of downsizing?
Stamp duty and tax can mean that many people chose not to downsize as the amount can be a considerable financial burden. There’s no stamp duty on the first £250,000 of the purchase price, but between £250,001 and £925,000 you’ll pay 5%, and for properties costing between £925,001 and £1.5m, you’ll pay 10% on the portion above £925,001; while anything above £1.5m is taxed at 12%.
There are other costs associated with selling a property and purchasing another one such as estate agent fees, surveys, solicitor fees, conveyancing, storage and removal costs.
Will downsizing affect my inheritance tax liability?
Your home might be your biggest asset and selling it could release a large amount of cash which is then inside of your estate for inheritance tax purposes. Selling your home and giving away cash you release can be a way of mitigating your inheritance tax liability.
Downsizing may also impact your residence nil rate band.
This is a complex area and it is important that you seek financial advice before making decisions.
You can book in a no-obligation meeting with a financial adviser at Four Wealth Management. Book online or call us on 0117 973 0500.
Discuss downsizing with your family
Downsizing can impact your whole family and it is important that you speak to your family before making decisions. If you are looking to release a cash sum to fund things such as potential future care costs then it is important that your loved ones know that you have planned ahead for this.
Downsizing and the value of financial advice
Downsizing can be a big difference to your finances and quality of life. It is important to discuss the impacts of downsizing with a financial adviser before making such a major life change.
You can book in a no-obligation meeting with a financial adviser at Four Wealth Management. Book online or call us on 0117 973 0500.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.
