Five tips from Michael Holmes on what to consider before buying a retirement property

Recent statistics revealing that Brits only save for 37 per cent of their retirement period is worrying for those who decide to buy a new home later in life. According to Michael Holmes, spokesperson for The National Home Improvement Show (27-29 September 2013, Olympia, London), with the rising cost of living, it is essential to prepare for the future. He outlines his five top tips on what you need to consider before buying a property for retirement.

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1) Do your research

There are certain caveats relating to buying a retirement home depending on whether it is freehold or leasehold so ensure you understand the rules prior to parting with any money. For example, with leased retirement blocks, you might be advised that your flat can only be sold to someone that is 55 or over. Seek independent legal advice and confirm that you can also resell on the open market, so that you rather than the management company will benefit from an uplift in property prices. Additionally, with this type of contract, your lawyer will explain that there are restrictions on renovations, alterations and landscaping so it is important to understand your rights before signing.

2) Age group

Moving into a retirement building is a great opportunity to form new friendships. Some properties are restricted to 55 and over but others are designed to cater for much older people who are still relatively independent and combine care facilities. It is fundamental that you investigate and liaise with the agent to establish what age groups are currently living within the block before purchasing your new home.

3) Fees

Establish whether you can afford a retirement property by finding out what service and maintenance charges are required for its upkeep, taking into consideration building insurance, water and fuel bills, ground rent (RPI linked), and council tax. If fees are high, your pension fund might not be sufficient so ensure that you can support your lifestyle before investing. A good way to do this is by using residual capital from the sale of a previous house to contribute to the annual costs. If you are buying off plan, ask the agent for an estimated breakdown of the charges and dates that instalments are due including a deposit that will need to be secured in advance, to help you set a budget.

4) Tax

Before selling your current home, consider your tax position. Rather than buying a retirement apartment/flat with money from the sale of a previous property, you can donate it to beneficiaries such as your children at any time. They could remortgage and lease it as a buy to let which would generate a new flow of income. If you live for seven years after gifting your house, it is exempt from Inheritance Tax. However if you continue to live in it rent-free for that time period, it’s known as a ‘gift with reservation of benefit’ and you will be expected to pay this levy- call the Inheritance Tax Helpline for more information.

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5) Alternative options

Rather than buying a retirement apartment/flat, discuss with your children whether they are open to the idea of adapting their own house for multigenerational use/purposes. This can be done by building a granny flat or converting a ground floor space into a bedroom and bathroom designed with accessibility. Alternatively, if your children have a large garden, they could create an annex within this area provided that the construction is only used by family or dependents, and is not rented out as an ‘independent dwelling’. Planning permission is not required for an annexe providing the work falls within ‘Permitted Development Rights’. The development of an annexe could be funded by the sale or remortgage of the parent’s previous residency, or by the children remortgaging their existing home. Be aware that creating an annexe in your home will incur a second council tax bill, albeit usually at the lowest rate, and this will only be removed if the annexe is no longer classed as habitable.

Image sources: Image with couch by and Bathroom image by Colin Poole.

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