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Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

Whatever your reasons for moving to a smaller property, how can you best invest the proceeds to provide a robust income in retirement?

There are a great many reasons that people choose to downsize their house: reducing running costs, feeling that the family home is now too big and, very often, to free up vital funds for retirement.

The average UK house price grew by 4.2% to £224,144 in the year to March, according to the Office for National Statistics. Research by SunLife reveals that the average person aged 55 or over has lived in their current home for 24 years and are likely to have seen its value triple in that time.



Indeed, data from Nationwide, shows the typical UK home has more than tripled over the past two decades from £62,903 in 1998 to £211,792 today. Many homeowners who have enjoyed such astronomic gains are now looking to make use of that extra cash to help fund their retirement and downsizing is often the first step. But it’s often not as easy – or as lucrative – as you may think.

Figures from online property portal Rightmove show the typical four-bedroom detached home in the UK (excluding London) is £478,176, while the average two-bed semi-detached house is £183,748.

Someone making the move from a large family home to a smaller property could then potentially free up a chunky sum of £294,428.

Of course, you won’t walk away with the full amount. Stamp duty on the semi-detached home will be £1,174 and, after mover’s
costs and solicitor’s fees, it is estimated that moving house costs around £9,000.



If the house you’re selling is a second home or buy-to-let property you may also have to pay capital gains tax on the profit you have made since purchasing it. Capital gains tax is 20% for basic rate payers and 28% for higher rate payers. That means if you had enjoyed the £148,889 of gains in the example above you could have a hefty tax bill of £38,608 after taking into account your capital gains tax (CGT) allowance of £11,000.

Some homeowners may be tempted to invest the money they have freed up from the house sale in a buy-to-let property. This can be an appealing investment proposition because it can provide a regular income from the rent received as well as the potential gains if house prices rise.

Jonathan Clark, mortgage partner at Chadney Bulgin, warns that purchasing a buy-to-let means paying an additional 3% in stamp duty as well as CGT when you come to sell the property. Recent changes to legislation also mean the tax benefits of owning a rented home are not as generous as they once were.

He adds: ‘I would have serious doubts about buy-to-let being a viable investment proposition. Renting isn’t always easy, you can get void periods and there are high upkeep costs. As well as that, house price inflation has been rampant for the past decade but that doesn’t mean it will continue.’


But planning your retirement income isn’t as simple as working out how much money you could potentially make from selling your home. Pete Chadborn, director at adviser firm Plan Money, explains: ‘Retirement incomes needs to meet two types of spending: basic expenditure which includes unavoidable costs such as utility bills, food shopping and running a car, and lifestyle expenditure, which covers holidays, meals out and hobbies.’

Savers should consider how much they need to generate to meet these needs and how long their money is likely to last. In some cases, he adds, an annuity may still be a good option – these are where you use your savings to buy an insurance policy, which provides a set income for the rest of your life.


For others, investing in funds and investment trusts that aim to pay a steady income will be a better bet. Investing through retirement can be appealing because, as well as getting an income from funds, there is the potential they will grow your money too – however, this does come with the risk that the value of your investments could also fall.

Ryan Hughes, head of active portfolios at AJ Bell, likes Evenlode Income (GB00BD0B7B32), which invests in dividend-paying businesses such as Marmite-maker Unilever (ULVR), Guinness brewer Diageo (DGE) and pharmaceutical firm GlaxoSmithKline (GSK). It yields 3.3%.

While the Evenlode fund sticks to UK companies, Newton Global Income (GB00B7S9KM94) looks across the world for dividends. The fund, which yields 2.9%, has investments in the US, UK, Switzerland and India. It backs companies such as fashion brand Ralph Lauren, tech company Cisco Systems and European drugs firm Novartis.

Meanwhile, Ben Yearsley, director at Shore Financial Planning, likes renewable energy investment trusts, which own solar panels and wind turbines and generate an income by selling the energy they produce. He likes Foresight Solar (FSFL), which yields 5.9% and Greencoat UK Wind (UKW), which yields 5.4%.

Finally, a fixed interest fund, which invests in bonds issued by companies and governments, can add some extra income into your portfolio. Hughes likes Artemis Strategic Bond (GB00B09DMJ21), which can invest in a mix of bonds depending on where the manager thinks the best opportunities are. Currently the fund, which yields 4%, invests in bonds issued
by the US Government, Nationwide Building Society and utilities company Electricite de France, among others. (HB)

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