Buying a second property for retirement

hoping2retire

My husband and I (both 55 yrs old) would like to retire to a bungalow.  We would like to buy one that needs work, but don't want to live in a building site.  We will be mortgage free by 2027 (but will be 57 then) and would like to stay in our current home until 2030.  So, the dilemma is - should we remortgage our current home (over, for example, 10 years), to enable us to buy a bungalow that we can work on while living in our current home?  What are the pitfalls of a second property? council tax, utilities, stamp duty, etc and what might the situation look like when we sell our current home (as that will be the 'second' property) - so are the proceeds subject to tax?  The alternative solution (that I can think of) is stay put, sell in 2030, buy the bungalow outright, and rent for 6 months while we do the work on the bungalow? The down side to that plan, is the limited time, as I would rather upgrade a bungalow over a couple of years.  It's really difficult to get a clear picture when searching all the different aspects of this online, so any advice and information would be greatly appreciated.  Thanks in advance

Flugelhorn

If you buy a second home you have to pay 5% extra stamp duty which is only refundable if you sell the original home within 3 years
You will probably pay 200% council tax on the second property 
You have to pay utilities on 2 properties

GDB2222

You’re likely to pay double or even triple the normal council tax on the bungalow as a second property. 

Your current residence will remain as your primary residence until you actually move into the bungalow, so there’s no CGT on your current residence assuming you sell it when you move. 

It is tricky to get insurance for empty houses. You may well find that water leaks are excluded, for example. 

poseidon1

hoping2retire said:

My husband and I (both 55 yrs old) would like to retire to a bungalow.  We would like to buy one that needs work, but don't want to live in a building site.  We will be mortgage free by 2027 (but will be 57 then) and would like to stay in our current home until 2030.  So, the dilemma is - should we remortgage our current home (over, for example, 10 years), to enable us to buy a bungalow that we can work on while living in our current home?  What are the pitfalls of a second property? council tax, utilities, stamp duty, etc and what might the situation look like when we sell our current home (as that will be the 'second' property) - so are the proceeds subject to tax?  The alternative solution (that I can think of) is stay put, sell in 2030, buy the bungalow outright, and rent for 6 months while we do the work on the bungalow? The down side to that plan, is the limited time, as I would rather upgrade a bungalow over a couple of years.  It's really difficult to get a clear picture when searching all the different aspects of this online, so any advice and information would be greatly appreciated.  Thanks in advance

Would have been helpful to provide some numbers and part of the UK your plans are based, ie value of current property, potential cost of 2nd property, potential funds available for bungalow refurb , location etc.

Bookworm225

hoping2retire said:

My husband and I (both 55 yrs old) would like to retire to a bungalow.  We would like to buy one that needs work, but don't want to live in a building site.  We will be mortgage free by 2027 (but will be 57 then) and would like to stay in our current home until 2030.  So, the dilemma is - should we remortgage our current home (over, for example, 10 years), to enable us to buy a bungalow that we can work on while living in our current home?  What are the pitfalls of a second property? council tax, utilities, stamp duty, etc and what might the situation look like when we sell our current home (as that will be the 'second' property) - so are the proceeds subject to tax?  The alternative solution (that I can think of) is stay put, sell in 2030, buy the bungalow outright, and rent for 6 months while we do the work on the bungalow? The down side to that plan, is the limited time, as I would rather upgrade a bungalow over a couple of years.  

mortgage - when you finally sell the current house will that give you enough money to clear the mortgage in full if you have spent most of the released equity on purchasing the bungalow?

CT - bungalow will be treated as either empty (ie TOTALLY unfurnished) or as a second home depending on the physical circumstances of what you have there. Either way that council is almost certain to have a premium rate applicable to either its "empty" or "second home" tariff. Claiming it is being "done up" is unlikely these days to give you any CT relief, but might be worth checking (discounts used to be given for "development" work but, even where still on offer, nowadays that normally relates to very significant work amounting almost to structural rebuilding, not just a lick of paint)

utilities - no impact at all, position just the same as your current property, you will pay a standing charge and for what you use doing the work to it 

stamp duty - you will pay the higher rate on purchase because you have not sold your current home at point of purchase. If you do sell current home within 3 years of the completion date of the purchase you can claim a refund of the higher rate as you then meet the condition for having "replaced" (ie. sold)  your main home. Take 1 day more than 3 years and you lose your right to a refund

you are entitled to CGT relief (private residence relief) on only 1 property at a time. As you are married your PRR claim must be for the same property for both of you.
Assuming you have lived in the current home for its entire ownership period it is currently totally exempt from CGT. Because of that occupation, it also gets a further 9 months added to the exempt period if you move out of it before selling. That means in reality you could move into the bungalow as your main home and have an overlap period where both properties are exempt for a 9 month concurrent period. 

Until you physically occupy the bungalow (or *nominate it) the bungalow will have a period during which it is not your main home and so will incur a CGT liability which will kick in if/when you finally sell the bungalow. If you never sell the bungalow and your kids (or the local cats home) inherit it, then the CGT liability dies with you.

* You are entitled to nominate which of the 2 properties you own should be classed as the PRR main home, however, given your clear intention to sell your current home in the short term it would be counter productive to nominate the bungalow as that would result in you losing 100% exemption on the current home if it takes longer than 9 months to sell it after nominating the bungalow.

hoping2retire said:

c and what might the situation look like when we sell our current home (as that will be the 'second' property) - so are the proceeds subject to tax?

how good is your crystal ball?
tax rules change and CGT is an obvious area that "the govt" has neither confirmed nor denied as a  way for them to get more tax without breaking any existing "pledges" re no tax increases

Albermarle

OP - Does not directly answer your question, but this current thread may be of some general interest.


Should you buy a bungalow as you get older? — MoneySavingExpert Forum

hoping2retire

the amount we would remortgage our current home would be about a third of it's value, so plenty of equity, so when selling in 2030, this would pay off the remortgage and leave us with a lump sum towards our retirement.  It is literally a minefield, so I really appreciate your responses - we have a LOT to consider.  Thank you all

user1977

hoping2retire said:

  It is literally a minefield

I hope it’s merely a metaphorical minefield. I recommend you do not buy a literal minefield for your retirement.

hoping2retire

I'm already too old to dodge mines....... haha

gwynlas

Having a plan in place means that you will be able to explore the market in your nominated location as it is unlikely that a bungalow requiring refurbishment comes up for sale when you feel ready to make an offer.

If it is a new to you location then consider the facilities you require when no longer able to drive.

Again if it is a relocation then it might be worth renting in the area prior to purchase to see it it fits.

We bought in this village but had a nightmare experience renovating property which we then sold and rented in another area of the country. Nothing suitable was found to match facilities here so we moved back and could not be happier

Smalltownhypocrite

I would personally stay put until 2030 then sell and move into rented while doing the work.

I believe some places give a 6 month break on council tax for properties being worked on (but after 6 months it may double council tax if still empty). I would check with your own local council though as to the rules where you live.