They say your home is your castle and the thought of selling and downsizing in retirement doesn’t appeal to some.  

Your forever home can be very hard to part with, especially if there are lots of memories and wealth built up in the house. 

However, the wealth tied up in your home is money that is likely to be lost either through care fees, Inheritance Tax or both. 

The problems with a larger house in retirement



It’s likely that your home is your largest asset and property has been a great way to build wealth over the last 60 years.  

In 1960 the average house price was £2,530 which is around £62,084 in today’s money. As of December 2022 the average house price was £294,329. 

So it can be reassuring to feel your money is safe in property and there is something tangible you can pass on to your loved ones.  

There is no question on the financial benefits of property however there are a number of problems with owning a larger house in retirement.  

#1 – A bigger house means more maintenance costs 

Homes need constant maintenance, updates, repairs and renovation. This all comes at a significant cost both financially and in terms of time you need to spend.  

Time and money that you might want to spend enjoying your years in retirement. 

#2 – Security 

The bigger the house the bigger the security risk.  

Older people may be targeted by criminals as they are perceived as more of an easy touch when it comes to scams and burglaries.  

This means more security measures need to be taken. Larger areas to cover with cameras and alarms to keep criminals at bay. 

#3 – Cash is tied up 

You can’t use the cash tied up in your property unless you use a product like equity release. 

If there was a big holiday you wanted to do in retirement you can’t just sell a few bricks from your house to release the cash.  

It also means you won’t get to see your loved ones enjoying the wealth you leave to them as you can’t give cash to them now. They will only get it on your death when the house is likely to be sold anyway. 

#4 – More Inheritance Tax to pay 

If your house together with your savings and investments comes to more than £2million then you will see your Residence Nil Rate Band (an allowance that means not all your house is subject to Inheritance Tax) will start to be lost.  

This will ultimately mean the Inheritance Tax due on your death is higher and therefore less left behind for your loved ones. 


Reasons to downsize in retirement



The benefits of selling your larger house for a smaller one are mainly twofold. There are physical benefits and financial benefits.  

As well as requiring less maintenance, a smaller house will also make things easier as you approach the later stages of your life. Moving around and being cared for will be easier if you are in a smaller house.  

A smaller house will also mean smaller bills which leaves more disposable income to be spent on more enjoyable things. It can also mean that you could afford to spend more of your savings in the early years of your retirement in the knowledge that you are going to drastically reduce your bills in the later years of your retirement. 

Finally, the big financial saving is going to be in the form of less Inheritance Tax and care fees.  

Downsizing will release cash from your property which you can then either gift to your loved ones and see them enjoy it or allow you to invest it in a way that avoids Inheritance Tax and/or care fees. 

Inheritance Tax and care fees can be virtually avoided if your finances are structured in a certain way.  

Remember, you are not avoiding Inheritance Tax and care fees for the sake of it. You are doing it because you want your loved ones to benefit from your wealth. Not the tax office. 

If you are not sure what to do with your personal and workplace pensions at retirement then please get in touch for a free no obligation 15-minute call. We would be happy to review your position, explain where you stand and what you need to do to get the outcome you desire. We have created hundreds of happy retirements over the years. This could be you too. 

Risk warning:

Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.