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Blog
Should I sell my house and rent when I retire?
House selling tips
22 June 2020

Should I sell my house and rent when I retire?

Rosie Hamilton
Writer & Researcher

Table of contents

  1. 1. Is it better to own or rent in retirement?
  2. 2. Pros of renting in retirement
  3. 3. Cons of renting in retirement
  4. 4. Things to consider: Inheritance Tax
  5. 5. Does it make sense to rent in retirement?

Renting in later life is a growing trend in the UK. Research by the Centre for Ageing Better estimates that by 2040, a third of people aged over 60 could be living in private rented accommodation. But what’s the appeal?

Renting in your retirement can offer flexibility in terms of location and finances. So, you can enjoy living in new areas, and have access to equity that was previously locked up in your property. Renting can also offer a community, and other support facilities that homeownership can’t provide.

Is it better to own or rent in retirement?

There are many reasons why you might consider selling your home and renting in retirement. But, there are also a few things you should bear in mind too. As with any large decision there are both pros and cons, and it’ll depend on your personal circumstances whether renting in retirement is the best option for you.

Pros of renting in retirement

  • Flexibility

One of the major advantages to renting is the flexibility. The ability to choose where to live, for how much of the year, and to experiment with a property of a different size without committing to living there permanently (or paying large amounts for stamp duty and a deposit). If you’ve always wanted to live in a city centre - or by the beach - renting can be a great way to try it out.

You could even consider renting in the UK for part of the year, and spending the rest of the year abroad, to get all the benefits of a second home, without the hassle of owning a property abroad.

  • Free up equity

Another reason many people choose to rent in retirement is to free up equity. The proceeds of your home sale can be used to boost your pension pot, or give you more options on how to deal with your estate during your lifetime.

  • No Mortgage

Although your credit score won’t change when you retire, your borrowing power is likely to reduce. This is because your ‘income’ as it appears on your credit report is likely to decrease when you move onto your pension. Many mortgage lenders also have age limits on their products, which can make it more difficult to get a loan at favourable rates once you're retired.

So, if you want to move house, but need a mortgage to purchase somewhere, renting may be more financially feasible.

  • Maintenance

When you rent, your landlord is responsible for arranging and paying for any necessary repairs and maintenance. Everything from blown double-glazing to a broken boiler is the responsibility of the landlord. And, landlords are obligated to fix problems to a specified standard. This can provide significant relief to renters, who save the cost of maintenance, and can be assured that repairs are done to a decent standard.

  • Facilities

If you decide to rent in your retirement, you’ll have the option of picking properties with special facilities that you wouldn’t get if you owned your property. Some rental apartments include access to swimming pools, concierge, and wellness facilities.

You could also choose to live in a home specifically designed for those in later life. These usually have assured or fixed rents which provide greater security, and they offer access to a community of neighbours at a similar life stage.

Some retirement rental properties also have onsite support staff, and are usually designed with mobility and accessibility in mind. This can be particularly handy if you have any health issues.

Another perk of support staff onsite is the ability to go on holiday for longer, knowing there will always be someone to keep an eye on your home.

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Cons of renting in retirement

  • Cost of selling

Perhaps the largest factor that puts people off renting in retirement is the cost and hassle of selling their property first. Putting your house on the market involves paying estate agent and legal fees, as well as opening up your home for potential buyers. However, a good estate agent will make the process smooth and hassle-free. And, if you rent, you don’t have to worry about the costs of buying - like the extra legal fees, or stamp duty.

  • Rents can change

One of the things that puts people off renting is that a landlord can change the price of your rent over time. When thinking about whether to rent, consider whether you’ll be able to afford your dream property if the cost of rent increased in the future.

Other costs to consider are an upfront deposit (usually the equivalent of 4-6 weeks rent), and monthly bills (though there are some government schemes that help.)

  • Limited length leases

Most rental leases only last a short period of time, usually somewhere between 6 months and 3 years. Although it's likely you'll be able to renew your contract, your landlord does have the right to ask you to leave when your contract expires. This can make renting feel less secure than owning a property, where you are the only person who gets to decide whether you move.

Things to consider: Inheritance Tax

You might be considering renting in order to take a more flexible approach to your estate. Perhaps you want to support a family member to get their own foot on the property ladder, or maybe you just want to make sure your beneficiaries don’t have to pay a lot of inheritance tax.

If this is your main consideration, it’s important to be aware of the limitations on gifting during your lifetime, and weigh up the best solution for you.

The first thing to be aware of is that inheritance tax is only charged on the part of your estate that’s worth over £325,000. If your house is worth £200,000 and you have savings of £50,000, your beneficiaries won’t have to pay any inheritance tax.

This threshold increases to £500,000 if you leave your estate to your children or grandchildren. And, if you’re planning on leaving your estate to your spouse, civil partner, or to charity, there’s no inheritance tax to pay.

There are also limitations on the number of financial gifts you can give each year. This is called your ‘annual exemption’, and it’s capped at £3,000. You can however carry over any unused annual exemption to the next year - so you could technically gift up to £6,000 in one year.

If you decide you want to gift your home, there’s no inheritance tax to pay, regardless of its worth, as long as you move out, and live for another 7 years. So, if you’re looking to avoid inheritance tax, and it’s financially viable, gifting your property rather than selling, might be a better option.

Does it make sense to rent in retirement?

Moving house can be stressful and expensive. But so can maintaining a property that’s too large or unsuitable, or being worried about your finances. Renting in retirement offers flexibility and places some of the responsibility that comes with home ownership on the shoulders of your landlord.

However, renting is a less secure form of homeownership. And unless you decide to gift your property, you will have to go through the home selling process. But, if you have a good estate agent the process should be smooth and hassle free.

Weighing up the pros and cons is a good place to start. Ultimately the decision comes down to your personal priorities.

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