With careful planning, it is possible to scale down the size of property to unlock retirement funds and still leave a lasting legacy for your family.

With countries like Portugal, Spain, France, Malta and Cyprus offering such favourable property opportunities in outstanding surroundings, it is not surprising that many Britons choose to retire to their own place in the sun. 

Whether you buy your main home abroad or just somewhere to holiday, your house is most likely your biggest asset. It is usually the most expensive item you will ever buy and has the potential to provide a substantial return on your initial investment over time. Many also view their home as a lasting legacy to secure the financial future of children and other heirs.

However, there are risks in relying on bricks and mortar for your wealth. After all, you cannot fully realise the financial benefits of a property while you are still living in it. Compared to other investments, property can also prove very costly to maintain.

Size does matter

Generally, the larger the property, the more expensive the running costs. Mortgage payments, rates, household bills, plus building and maintenance expenses can all add up to generate a relatively high ongoing burden. If you are retired with a reduced or limited income, this can be especially draining on your resources, particularly if you own more than one property. 

Affording retirement 

With today’s increased life expectancy, you may need your existing wealth to stretch to ten, twenty, or even thirty plus years in retirement. Are your pensions, savings and investments on track to sustain the lifestyle you want for as long as you need?

See steps you can take to make your money last as long as you do

Many people find themselves in an ‘asset rich, cash poor’ situation, owning considerable physical wealth such as property but with substantially less disposable income. Expatriates in particular tend to hold on to UK property in addition to their overseas home. 

While property can be a solid investment, it locks your money away in a highly illiquid way. If you want access to your capital, you may not be able to sell easily, nor for the right price. Also, there is risk in tying your funds up in one asset class – if the value of property drops, so does your investment.

Property offers potential leveraging opportunities – such as freeing up cash through equity release – but like any debt arrangement, this comes with costs and risks. For retirees looking to shed debt and leave something behind for children and grandchildren, more borrowing is not the answer. 

Benefits of reinvesting your capital

Downsizing property can help increase your accessible wealth, but it needn’t be a compromise when it comes to investment growth. By reinvesting in suitable investment funds, for example, you can still invest in property but alongside other assets (equities, bonds etc.) to reduce risk through diversification. And, unlike property, if you require small amounts of cash you can just sell the amount you need, not the whole investment. 

A specialist adviser can help you explore investment arrangements that suit your particular circumstances, goals and risk appetite while being tax-efficient for your country of residence. You could also unlock other benefits that property cannot offer, such as a regular income and currency flexibility. 

When it comes to estate planning too, there may be more opportunities to reduce succession tax for your heirs on investment capital than with real estate. 

See six tips for protecting and growing your wealth

Reducing taxation

Wherever your home is, charges such as stamp duty and capital gains tax generally increase with the property’s price tag. Higher-value homes can also tip you over the threshold for wealth tax, where applicable, as well as increasing the inheritance tax bill for your heirs.  

Portugal's wealth tax 

Portuguese property attracts annual wealth taxes of between 0.4% and 1% if valued over €600,000 (€1.2 million if jointly owned), regardless of where you are resident. 

France's wealth tax

Owning real estate assets worth over €1.3 million attracts annual wealth taxes of between 0.5% and 1.5% in France (over an €800,000 allowance). For French residents, this applies to worldwide real estate, including UK property.

Spains' wealth tax 

You usually attract wealth taxes of between 0.2% and 3.5% if the combined value of your Spanish property and other assets exceeds €700,000. Although Spanish residents can receive a €300,000 main home allowance, worldwide assets – including UK property – would be counted to assess liability.

Wealth tax rates seem relatively low, but when applied to property values this can add thousands to your tax bill. By reducing the amount of tax payable, you can make your money go further in your lifetime and maximise the value of your legacy. 

Read our article 'How much will a UK property costs you in taxes?

Ultimately, while you want to make sure your family are looked after when you are gone, do not forget your own needs. Take personalised, cross-border advice to establish an investment and estate planning strategy that can secure a comfortable retirement for you in your country of residence today and a lasting legacy for future heirs. 

See more financial planning tips for expatriates

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.