Retirement property: what's the drawback?

[pattihews]

A friend has contacted me to ask me to go and look at this property on the Gower peninsula. It's for her dad, who is a fit, spry 73-year-old who is looking for a small, low-maintenance property he can lock and leave while he goes travelling. He's selling a much larger, high maintenance home in the Cardiff area and plans to give much of the proceeds to my friend and her brother and their children.

www.rightmove.co.uk/properties/124009253#/?channel=RES_BUY

It seems great value but it's just 107 years on the lease. He has a very good pension and can easily afford ground rent and service charge with ample left for a comfortable life. There are a couple of apartments in this development that have been on the market for more than a year and are now being sold from around £40k.

The only problem my friend can foresee is that it may be difficult to sell if/ when he wants to move on or dies. He's considering other options, but a nice one bedroom flat in a non-retirement block in a reasonable location would cost four or five times the price of this one at least.

What happens if an elderly relative dies or has to go into a home and the flat won't sell? They realise they'd have to keep paying the service charge, ground rent, council tax and water, which could end up costing £7k+ pa. My friend's attitude is that at this kind of price they'd be prepared to give the place away if necessary. But can you do that?

The lease is usually granted with the condition that the freeholding company / managing agent has to approve any resale of the property and its future occupant so you’d need to ask them whether they have a minimum price requirement for resale and any terms attached to it. Some complexes will refuse to admit a new occupant whose needs are too high / they feel can’t be met, so they can’t guarantee that it would be as simple as just giving it away.

The lease itself isn’t particularly short and on the basis that residents don’t tend to buy these places with mortgages, isn’t an issue in the same way a short lease is for non-retirement properties.

There have been a couple of threads about this recently if you want to try searching.
The main drawback seems to be how difficult they are to sell, afterwards. Your friend needs to think about that.

Giving away his money now can be seen as deprivation of assets if he needs to go in to care in a few years time, or if he dies it can be seen as trying to avoid inheritance tax - you friend and her brother should think about how they would pay it back if they have used it to invest in their own hose for example.

Thanks for the advice. I was concerned that there was something we were overlooking but perhaps not. Comparable McCarthy and Stone flats in Swansea are at least double the price and not in such a picturesque area.

I'm sure he is trying to do what I think is politely called estate planning, but I also know that he's had endless maintenance and repair issues with his last home, which was a period building, and was hoping to find a way to avoid that.

@UsingChangeofName I think your last paragraph is wrong on two counts.

1. Downsizing is not deprivation of capital, AFAIK
2. Anyone can give away as much money as they like. It isn't seen as avoiding Inheritance Tax, and can be a very sensible thing to do. But if the giftor dies within 7 years of the gift, there may well be IHT to pay out of the estate, depending on its size.

I have given £20K to a DC 2 years ago, now I just have to live another 5 years and there will be no potential IHT on it any more. Otherwise it is counted back into the estate, then taxed at a reducing rate depending on how many years since it was gifted.

Downsizing is not deprivation of capital, AFAIK

No, downsizing per se isn't, of course, but giving all your money away is looked at (or so I've read - I've not been in the situation) should the person who gave their money away then need to move to a care home a year or two later.
Otherwise lots of people would do it, wouldn't they? "No, I have no money to pay for my care because I gave it all to my dc last year "

I don't think that's the situation here. The family isn't like that. I have a rough idea of his pension and all I'll say is that he's a higher rate tax payer despite having been retired for some years and that his pension would cover the cost of a reasonable care home if he needed one in the future. I also know that my friend and her brother would contribute if required because they know how fortunate they are.