Downsizing explained
Downsizing means selling your home and buying a smaller or cheaper one, releasing the difference in value after moving costs. For homeowners aged 55+, downsizing can free up money without borrowing and cut running costs, but fees, Stamp Duty and the upheaval of moving mean it is not right for everyone.
This is general information, not financial advice.
What downsizing involves
Downsizing usually means moving from a larger or higher-value home to one that is smaller, easier to manage or in a cheaper area. The money left over can repay debts, top up income or help family.
How much downsizing might release
Moving costs take a share of the gap between the two prices.
A worked example
Say you own a home in England worth £450,000 with no mortgage, and buy a £275,000 bungalow:
| Item | Amount |
|---|---|
| Sale price | £450,000 |
| Purchase price | −£275,000 |
| Estate agent fee (1.5% including VAT) | −£6,750 |
| Legal fees for sale and purchase, including searches | −£3,000 |
| Removals | −£1,500 |
| Stamp Duty Land Tax | −£3,750 |
| Approximate money released | £160,000 |
The Stamp Duty figure uses the rates for a buyer replacing their main home in England: 0% on the first £125,000, 2% on the portion from £125,001 to £250,000 (£2,500) and 5% on the portion from £250,001 to £925,000 (£1,250 on £25,000), a total of £3,750.
Scotland uses Land and Buildings Transaction Tax and Wales uses Land Transaction Tax, with different bands. Higher rates may apply if you keep your old home while buying the new one. Our downsizing calculator gives a rough estimate for your own figures.
Things to weigh besides money
- Emotional ties. Leaving a family home can be hard, and a move is tiring at any age.
- Location. A cheaper area may mean being further from friends, GPs or transport.
- Future care needs. A single-storey or adapted home may let you stay independent for longer.
- Family. Moving nearer relatives can mean more support, but fewer spare rooms for visits.
Our comparison of downsizing vs staying put looks at these trade-offs in more detail.
Downsizing vs equity release and RIO mortgages
Downsizing is one of three common ways to use the value in your home:
- Downsizing has no loan or interest, but you must move and pay moving costs.
- Equity release lets you stay put, but interest usually compounds and reduces what you leave behind.
- A retirement interest-only (RIO) mortgage keeps the debt level if you pay the interest monthly, but the payments must be affordable from your income.
See our side-by-side guide to equity release vs downsizing.
Benefits, inheritance and tax
Money you keep after moving counts as savings for means-tested benefits. Pension Credit starts to take account of savings above £10,000, and proceeds held to buy another home may be ignored for a limited period. Our guide to whether downsizing affects benefits covers what to check.
A move to a cheaper home need not lose the residence nil-rate band for inheritance tax: the "downsizing addition" can preserve some or all of it where you downsized on or after 8 July 2015 and leave assets to direct descendants.
Selling your main home is usually free of Capital Gains Tax under Private Residence Relief. A tax adviser can confirm how the rules apply to you.
If you already have equity release
Many lifetime mortgages can move to a new home if the lender accepts it. If the new property is worth less, you may need to repay part of the loan, and an early repayment charge could apply unless the plan has downsizing protection. See moving house after equity release.
Not sure where to start?
Downsizing can release money without borrowing, but it involves costs, upheaval and effects on benefits and inheritance. An FCA-regulated adviser can compare it with your other options, and a solicitor can handle the legal side.
Prefer to read more first? Explore our guides
Free to use. No obligation. We do not provide financial advice.
Frequently asked questions
Does downsizing involve borrowing?
No. Downsizing releases money by selling your home and buying a cheaper one, so there is no loan and no interest building up. The trade-off is the cost and upheaval of moving. Some people combine a smaller move with borrowing, such as porting an existing plan, which an FCA-regulated adviser can help you weigh up.
Do I have to pay Stamp Duty when I downsize?
Usually, if you buy in England or Northern Ireland and the price is above the nil-rate threshold, which is £125,000 for most buyers. Scotland charges Land and Buildings Transaction Tax and Wales charges Land Transaction Tax, each with its own bands. Check the current rates on the relevant government website or with your solicitor.
Will downsizing affect my State Pension or Pension Credit?
Your State Pension is not means-tested, so it is not affected. Pension Credit and some other benefits take savings into account, and sale proceeds you keep rather than spend on your new home could reduce or end them. Money earmarked for buying another home may be ignored for a limited period.
Can I give some of the money to my children?
You can, but a large gift may count towards your estate for inheritance tax if you die within seven years, and giving money away can affect means-tested benefits and care funding. Our guide to gifting money to family explains the rules. A tax adviser or solicitor can help with larger sums.
Can I sell my home to a family member when downsizing?
Yes, but selling below market value can have tax, benefits and care-funding consequences, and a solicitor should act for each side. Our guide to selling your house to family covers the rules. Taking legal advice before agreeing a price is sensible.