Downsizing to fund retirement: the numbers people forget

A £500,000 home sold to buy a £350,000 one does not release £150,000. After stamp duty, agent and legal fees, moving and doing up the new place, £110,000 is nearer the mark, and if the smaller home turns out to cost £400,000 you release £60,000. Model the net figure, at the age you will actually do it, in today’s money.

Figures for the 2026/27 tax year · Published 2 October 2026

“We’ll downsize at some point” is the most common line in British retirement planning and the least often costed. The house is usually the biggest asset in the plan, so the gap between the hoped-for figure and the real one can be the difference between a plan that works and one that doesn’t.

What comes off the top

Take a couple selling a £500,000 house in England to buy at £350,000.

• Stamp duty on the purchase. On £350,000 for a home mover: nothing on the first £125,000, 2% on the next £125,000 (£2,500), 5% on the remaining £100,000 (£5,000). £7,500. Scotland and Wales have their own taxes with different bands.
• Estate agent. Typically 1–1.5% plus VAT on the sale: around £7,500.
• Conveyancing, searches, surveys on both sides: £3,000–£4,000.
• Removals, storage, new furniture that fits, the kitchen you “just” replace: realistically £10,000–£20,000.
• Any mortgage left on the old home comes off before you see a penny.

£150,000 of headline difference becomes roughly £110,000–£120,000 in the bank. That is still a lot of money. It is also 20–25% less than the plan assumed.

The replacement costs more than you think

The smaller home in the nicer area, the bungalow, the flat with a lift: these carry a premium. Many downsizers find the place they actually want to live in costs 80–90% of what they sold for, not 70%. At £420,000 instead of £350,000, stamp duty is £11,000 and the net release drops to around £40,000–£50,000. Decide what you are moving to before you decide what it will release.

And if the new home costs more than the sale, the difference has to come out of your savings and pensions that year. Isaac now charges that shortfall to the plan automatically and labels it “extra needed” on the property chart, so a move that costs money shows up as one.

Timing changes everything

A sale at 62 funds the bridge to your State Pension. A sale at 75 funds later-life care or tops up a pot that is running down. Both are legitimate; they are different plans. Put the age in and look at the chart. A common mistake is to assume a sale at 65 in a plan that only needs the money at 80, which overstates how comfortable the early years are.

House prices grow too, but so does the price of the home you are buying. The gap between them is what you release, and over fifteen years the gap in cash terms grows roughly with house prices, while your spending grows with inflation. Isaac models both separately, and lets you set a flat or even negative growth rate if you think your area or type of property is going nowhere.

Tax on the sale

Your main home is normally free of Capital Gains Tax under private residence relief. A second home, a buy-to-let, or a period when you let the house out can create a CGT bill: 18% for basic-rate taxpayers and 24% for higher-rate, on the gain above the £3,000 annual exempt amount, reported and paid within 60 days of completion. If the property was ever anything other than your only home, check before you count the proceeds.

Downsizing versus equity release

Lifetime mortgages let you stay put and borrow against the home, with the interest rolling up until death or care. They are flexible and, for someone who cannot face moving, sensible; they are also expensive over long periods, and they reduce what is left for the estate. Downsizing releases more money per pound of house and leaves no debt, at the cost of a move. Model both: the lifetime mortgage as an interest-only mortgage that is never repaid, the downsize as a sale with a cheaper replacement. The chart will show you the trade.

The checklist

• Price the home you would actually buy, not the one you would settle for.
• Subtract stamp duty, fees, moving and refurbishment: budget 8–10% of the new price.
• Clear the mortgage from the gross proceeds.
• Pick the age that fits the plan, not the age that makes it look good.
• Check whether any CGT applies.
• Run the plan without the sale too. If it only works with the move, the move is a decision, not a backstop.