How moving to a retirement village could affect your legacy

Moving into a retirement village in your later years can have a huge positive impact on your quality of life.

If you choose the right development, you will be able to live in attractive surroundings with excellent amenities. You will also be able to retain your independence, secure in the knowledge that more support is available whenever you need it.

10 reasons to choose retirement village living.

But what about from a financial perspective – in particular, what will be the consequences for any inheritance you may be able to leave to the rest of your family? 

And how does this compare with alternative options, such as moving into a residential care home?

How retirement villages work

Retirement villages are areas, often newly built and landscaped, which contain flats or small homes designed for older people. 

The villages offer a range of services aimed at this age group, from social events to basic medical assistance and help with everyday tasks, such as cooking or getting dressed.

Residents typically buy a property in the village outright, and may often sell their existing home to do so.

The amenities are paid for out of service charges levied on all residents, and extra fees can be payable depending on what additional services are used.

For further information about retirement living and how to find your perfect home, download and read our complete guide to Retirement Living and Villages.

Paying for residential care

If, on the other hand, you were to go into residential care, you would in many cases be expected to cover the costs of care. If you are the only person living in your home when you go into care, the value of the property will be included in your local authority’s financial assessment, when they work out how much money you will have to contribute towards the costs of your care.

As a result, people are frequently expected to sell their homes in order to provide the funds to cover care bills – recent surveys show these average almost £30,000 a year.

Can you avoid care home fees?

The effect on your legacy

Whether you move into a retirement village – and continue to own your own home – or into a residential care home will very probably have a significant impact on the legacy you are able to leave to your family.

If you go into a care home and have to sell your house in order to cover your bills, the value of the equity you have built up over the years may quickly be depleted.

In a retirement village, on the other hand, you will continue to own a property which can be passed to your descendants when you die. However, most retirement villages impose what are called exit fees on the sale of any properties – these are typically a percentage of the sale price.

If you were to leave your retirement village apartment to someone in your Will, they would have to pay this exit fee out of the proceeds of the sale.

Retirement living revealed.

Exit fees and service charges

In many cases, retirement villages use the money they receive (or expect to receive) from exit fees as a way to keep ongoing service charges for residents at a lower level than they would otherwise be.

Bear in mind that the cost of these service charges will also deplete your savings to some extent, and this will ultimately have an impact on the value of the assets your family is able to inherit.

When you are looking at retirement villages, be sure you understand what the ongoing service charges are, as well as whether any exit fees may be levied before you sign a contract. 

Check also to what extent service charges may be increased in the future. In some developments, there may be a limit on annual increases to give residents extra peace of mind.

Confused by all the jargon? Read our guide to terms and phrases used when talking about retirement villages.

Downsizing to a retirement village

If you downsize from a family home to a flat in a retirement village, there is a good chance that you will release a considerable sum of equity if the value of your old property is higher than your new apartment.

You may eventually be able to leave some or all of this capital to your family in your Will, but because the money is no longer tied up in bricks and mortar, it could be easier to take steps to minimise future inheritance tax (IHT) bills.

Inheritance tax is currently levied at 40% on any part of an estate above £325,000. If you think there is a chance your estate could attract IHT, it is possible to reduce its size in advance.

For example, current tax rules mean that individuals can make cash gifts to relatives or anyone else worth up to £3,000 a year. This money will no longer be considered when calculating IHT.

Larger gifts can also be made, but they will only fall outside the donor’s estate for IHT purposes after seven years have passed. If the individual dies between three and seven years after making the gift, a lower rate of IHT will be charged.

One potential issue to bear in mind when making such gifts, however, is how they may be viewed by your local authority if you have to move into residential care. If the authority thinks you have been giving money away just so you have to contribute less to your cost of care, it can include the value of any gifts in its means test.

Did you know? Saga has a contemporary new retirement village, set in the Wiltshire countryside, for people over 60 who want to live life to the full.