Can I sell my house and still live in it?

There are a number of reasons why someone might ask, ‘can I sell my home and still live in it?’. The most common are related to old age. You may, for instance, want your children to avoid Inheritance Tax. Or, if you’re after a well-financed retirement, you may wish to release some of your home’s equity.

Yes, it is possible to sell your home and continue living in it, either as a tenant or rent-free. However, this all depends your circumstances, and the route you decide to take.

Let’s take a look at some of the ways you can continue to live in your home after selling it.

Sell and Rent Back Scheme (SRB)

Sell and rent back schemes (SRBs or leaseback companies) were once a popular way to circumvent problems with mortgage repayments. An SRB involves the homeowner selling their property to a private firm for a reduced price, and then renting the property back from the firm (also for a reduced rate).

Unlike many of the other schemes in this article, SRBs are not equity release plans. Equity schemes are designed for people who have paid off their mortgage, whereas SRBs are designed for homeowners who haven’t. This makes them attractive to those who are struggling to pay back their mortgages.

It’s worth being extremely cautious around Sell and Rent Back schemes. The Financial Conduct Authority (Government watchdog), which is responsible for ensuring private firms follow the rules, previously found a vast range of problems with these companies.

I’m considering a Sell and Rent Back Scheme…

If you’re considering a SRB, it’s imperative that you act with caution. According to law, these firms:

• Must arrange an independent valuation of your home if you haven’t already done so.
• Must check you can afford the agreement and whether it will affect your entitlement to benefits.
• Must arrange a fixed term tenancy of at least five years.
• Must give you at least 14 days to give you time in deciding what to do.

When you’re deciding which SRB to go with, remember:

• To weigh up how much they are offering you

Sell and Rent Back schemes make their money by buying homes below market rate, which means you may end up losing money on the sale of your home. You might have been able to make more from your sale, and use the remaining profit to pay off any debts you owe.

• That you could still get evicted

You’re still vulnerable to eviction, even if you sell with an SRB scheme. Tenancy agreements, even those agreed under an SRB scheme, can be violated, leaving you vulnerable to eviction.

Another cause for eviction is the end of the fixed term tenancy agreement. With the five year period at an end, the landlord can easily evict you, even if you gave them no cause to during your tenancy. A long term leaseback must be signed and agreed upon before, not after.

Sell and Rent Back schemes are highly risky, so always proceed with caution when dealing with one of these firms.

Can I sell part of my house?

Yes, you can sell a part (or share) of your house.

If you were to sell a share of your property to a friend or family member, you have two options. They could either pay cash for the share percentage agreed, or they could get their lender’s agreement to be applied to their existing mortgage, and instruct their conveyancer to arrange a ‘transfer of equity’. This would allow them to be listed as joint owners at the Land Registry. If the transfer of equity is worth over the Stamp Duty Land Tax threshold, there would be outstanding Stamp Duty to pay.

You can also sell part of your house in what’s known as a Home Reversion Scheme.

Home Reversion Scheme

Home reversion schemes are a form of equity release, whereby a lender offers between 20 and 60 percent of the value of the share of your property, and you either receive a cash lump sum or a regular income. You can either sell a share in your property, or the entirety of it. Security of tenure gives you the right to continue living at the property until you wish to vacate.

Most homeowners sell their entire property in exchange for a lifetime lease. Once the homeowner dies, the property falls into the lender’s ownership.

The price at which the property or share is sold to the lender is dictated by several factors, including:

• The homeowner’s life expectancy (the older you are, the more you’ll get for your property)
• Expected house appreciation and volatility
• Maintenance and insurance costs

Although the lender owns your home, you can live at the property rent free, and since it’s not a loan, there are zero interest charges or capital repayments.

I’m considering a Home Reversion Scheme…

If you’re considering a Home Reversion Scheme, remember that age plays a big role in how much of a percentage you get of your home’s full market value. Under a lifetime lease, you carry the right to continue living in your home - but some plans may require monthly repayments to allow for a larger release of equity.

The terms of your lease depends on which scheme you choose, so make sure you shop around.

While Home Reversions are a useful way to release equity from your home, there’s a number of risks that come with them. Remember that:

• You will no longer own your full home, just a share of it.
• You will still need to maintain your property while you live there. It’s best to h ave some money put aside to pay for any repairs, damages or other costs like ground rent.
• You will have to follow the terms set out in the lender’s lease. You could be evicted if you violate its terms.
• Some freeholds carry an annual rent, which you might be liable for.

Ultimately, Home Reversions plans carry a greater risk than standard mortgages. As they involve selling large shares of your property, they could have big implications for taxes, inheritance and benefits. You should always receive financial advice from a qualified expert before applying for a Reversion Scheme.

Lifetime Mortgage

Like Home Reversion Scheme, Lifetime Mortgages (sometimes called Reverse Mortgages) are another form of equity release scheme (ERS) - the difference being that a Reversion Scheme sees a share of your house sold for less than its market value, while a Lifetime Mortgage is a loan secured against your house.

Under a Lifetime Mortgage, the provider takes mortgage charge of the property and lends the homeowner a lump sum or income stream. Typically, mortgage repayments are not required during the homeowner’s lifetime. Instead, Lifetime Mortgages are repaid from the proceeds of the property sale once the homeowner dies or moves into a care home. You can, however, repay the mortgage earlier if you so wish.

I’m considering a Lifetime Mortgage…

If you’re considering a Lifetime Mortgage, it’s worth remembering that only a maximum of 60% of your home’s value is available. The higher tiers of the limit are restricted to a handful of providers, and this also depends heavily on both your age and mortgage lender. As with Reversion Schemes, the older you are, the greater your Loan to Value ratio (LTV).

It’s also worth noting that there is a risk you’ll owe far more than was initially borrowed when the time comes to sell. Lifetime Mortgages, like standard mortgages, charge compound interest. However, this loan cannot exceed the total value of your house.

Can I sell my house to my children?

Some elderly homeowners choose to sell their homes to their children and continue to live on in the property. While this is perfectly legal, there are some tax issues that could cause trouble later on.

If your child has a main residence already…

If your son or daughter already has a main residence, and they aren’t planning on selling it, they can’t use a standard residential mortgage to buy your property. They will have to use a Buy-to-Let mortgage instead. These mortgages usually require a 40% deposit, and an ability to cover the mortgage out of earned income.You will also have to rent this property from them at a standard rate.

Buy-to-Let mortgages can be difficult to obtain, especially for such a personal endeavour. Most lenders only consider applicants who are purchasing for commercial purposes.

If your child sells their main residence…

If your son or daughter is planning on selling their own property to buy yours, they can use a residential mortgage to finance their purchase.

If you, the homeowner, have already paid your mortgage off, you could sell your home for under market value, effectively gifting a portion of your property to your child. For example, if the value of your property is £420,000, and they buy it for £320,000, you have gifted them £100,000.

Inheritance Tax

Gifts above the Nil Rate Tax Band that are made within seven years of death are subject to Inheritance Tax (IHT). If you live for seven years after the gift was made, there is no IHT for your child to pay - unless, as in this case, you continue to live in the property after the sale.

If you do continue to live at the property after the sale, Inheritance Tax will be payable on the property in the event of your death. However, if you pay rent at a market rate, this will reduce your child’s liability of IHT. The income your son or daughter earns from this rent will be subject to Income Tax.

Your child will also have to pay Stamp Duty Land Tax if you do not completely own your home (without a mortgage).

Capital Gains Tax

If your property is one of several residences you own, your sale could be liable for Capital Gains Tax. Capital Gains is a tax on assets, like property, that have increased in value since coming to ownership of them.

The risks

As outlined above, there are significant tax risks associated with selling your home to your children. There are also more personal risks.

• Your child, as the new legal owner, will have the ability to evict you. While uncommon, it’s not unheard of that familial disputes have resulted in parents being evicted from their homes.
• The property is at risk of being sold as a result of divorce or bankruptcy.
• If your child dies before you, and they haven’t made specific provisions to allow you to stay in the property, you could lose your place there.

Should I sell my house and rent in retirement?

If you have a lot of equity in your property, or own it outright, selling it could help fund your retirement. On the surface, renting is cheap, and you would get to keep the majority of your profits.

However, renting in retirement could get extremely expensive. According to HomeLet, the average rent in London is £1,572 a month, which means each year you would pay £18,864. If you sold your home for £360,000, it would take five years to spend £94,320 on rent, or 26.2% of the profits from your house sale. If you have children or family, renting in retirement could have big implications for the inheritance you leave behind when you die.

Many homeowners instead choose to sell their homes and downsize in the face of retirement (buying a smaller, cheaper property). This means they’ll still have money left over to fund their retirement, while also living mortgage and rent-free for the rest of their independent lives.

Compare estate agents

It takes 2 minutes.

Compare Agents

Summary: Make your home go further

There are a number of ways you can sell your home and still continue living in it. However, as with many unconventional property plans, there are potential drawbacks, like taxes. The best way to avoid these issues is to prioritise long term financial planning. To get started, find out the true market value of your home by choosing a reliable estate agent, and hire an independent financial adviser.