upside of downsizing

There comes a time in every woman’s life when their current home is just too much to cope with, for a number of reasons. But what is the upside of downsizing your home?

How popular is downsizing?

According to new research by Lloyds Bank, almost half of all households planning to move house within the next three years are hoping to downsize during that move. In fact, it’s currently the most popular reason for moving home. 

Why do people want to downsize?

There are a number of motivations for downsizing your property, both practical and financial.

Some people may simply feel that their home as become ‘too much’ to cope with. Older homeowners may feel there is too much space once their children have flown the nest, or they simply tire of having to keep on top of the cleaning and maintenance of a larger property.

Others choose to give themselves greater financial freedom, by moving to a property that has less financial commitment. Lower council tax and utility bills are just two of the advantages of moving to a smaller house.

Another key reason that people downsize is to release equity from their property. Particularly for older generations that have paid off the mortgage, moving to a smaller property frees up cash to invest in other ways.

What’s the best thing to do with money generated following the release of equity?

While some people may choose to spend some of the money released through downsizing on special treats, such as doing up their new home or going on a holiday of a lifetime, many want to use those funds to support their retirement.

Half of all people who choose to release equity from their home will invest it or put it into a pension. Most of these will be in their fifties, which can influence how they choose to invest their money.

For example, they may choose an annuity – or their investment portfolio might include lower risk assets based on their age – but this doesn’t have to be the case. There is no hard and fast rule about risk based on age, so long as your financial adviser has explained the situation thoroughly before making a decision.

How else can the equity released be invested?

Another popular option for households that choose to release equity is to invest it in their family, as such, by making financial gifts to children and grandchildren and maybe to help reduce their inheritance tax liability.

This has become a less attractive option over the past year, however, since the chancellor announced changes to inheritance tax legislation in his 2015 budget.

Under the new regulations, the effective inheritance tax threshold has been set at £1million. This now means most family homes fall within the threshold.  The government is introducing a nil-rate band for homes passed onto direct descendants following their death.

This means that most homeowners are likely to be able to pass on their home to their children without those children facing a potential inheritance tax bill. As a result, there is less incentive to downsize on these grounds, and also they may wish to keep their biggest asset to have more to pass down when they are no longer here.

If you would like to know more about how to release the value of your home for your retirement planning, contact us today.


The Financial Conduct Authority does not regulate taxation and trust advice.

Levels and bases of reliefs from taxation are subject to change.

Investments and the income from them may go down as well as up and you may get back less than the amount you invested. Past performance is not a guide to future performance.

Leave a Comment

Your email address will not be published. Required fields are marked *