The arithmetic of downsizing: what selling actually costs
Worked numbers on a typical Ilford landlord selling a let house to buy a smaller home — and what the same house produces if it is leased instead.
Advice about downsizing usually skips the part that stops people doing it: the cash cost of the transaction. Here is a plain worked example. The figures are illustrative and your position will differ — take proper advice from an accountant before acting — but the shape is right.
The sale side
A four-bed in Ilford bought in 2002 for £180,000, worth £600,000 today, held as a rental rather than a main home. The gain is roughly £420,000 before allowable costs. After the annual exempt amount and purchase and sale costs, most of that gain is taxable at the residential CGT rate. For a higher-rate taxpayer that is a five-figure bill running well into six figures territory once the whole gain is counted — money that leaves the pot before anything is bought.
The purchase side
A £400,000 replacement home carries standard stamp duty. If another property is still owned on completion day, the additional-property surcharge applies to the whole price, adding tens of thousands more. Then agent fees at 1–1.5 per cent of the sale, conveyancing on both transactions, and removals.
The uncomfortable summary: a downsize can consume a large share of the equity released, purely in tax and fees, to end up in a house worth less than the one you left.
The lease side
The same house on a guaranteed rent agreement produces a fixed monthly payment for the length of the term — no void months, no re-let fees, no management fee taken off the top, no maintenance callouts to fund. Nothing is sold, so no CGT event occurs and no additional stamp duty is triggered on the next purchase because the position is unchanged. The income funds a rental or a smaller mortgage, and the asset keeps compounding in the background.
- No sale, so no capital gains tax crystallised now.
- No second purchase forced by timing, so no rushed stamp duty decision.
- Fixed income you can show a lender or a landlord when you rent something smaller.
- The option to sell later — including timing it around your wider tax planning.
Where this breaks down
If you need a large lump sum immediately, income does not solve it. If the house is your only property and your main residence, private residence relief usually removes the CGT problem entirely and selling may well be the cleanest answer. And if you are close to a genuine estate-planning deadline, the order of events matters more than the monthly figure. This model is for the middle case: asset-rich, cash-poor, and stuck.