Downsize without moving; split your home in two

Downsize without moving: If your home’s big enough to divide in two, why not consider selling or renting out the half you don’t need.

Recent data confirms there are 18.5 million owner-occupied homes in England and Wales, a growth of more than 2 million over the last ten years. Bernard Clarke, of the Council of Mortgage Lenders, suggests that, apart from a more general increase in house buying, this increase includes a larger number of houses divided into multiple properties. In London, even more so. Is it the perfect way to downsize?

“A good example is when people sell the basement of, say, a four-storey townhouse,” says David Smith, a senior partner at London-based estate agent Carter Jonas. “Historically, basements were servants’ quarters anyway so they have their own access, meaning the renovation required could be minimal.”

Anyone wanting to try this will need planning consent from their local authority to divide their home into two or more properties – and whether this is agreed will depend on a number of factors. “The property will obviously need to be big enough as well as meet building regulations in terms of access; for example, where new doorways and staircases are situated,” says Paul Marsh, the past president of the Law Society.

The application process can be complicated

But even a textbook application may not be passed if it does not fit with local authority requirements, said Mr Marsh. “You may not be permitted to convert a large Georgian house in London’s Richmond into flats as it would not be in keeping with the area. But in other locations, you would not be permitted to convert several existing flats back into one big property due to a high demand for housing. Each local authority will have its local legal regime established.”

So, if you are buying a home with the intention to downsize by dividing it into two, you must establish planning permission first. Richard Cass, 64, a director of an architect and property planning company, did just that when he purchased a large but dilapidated 19th-century property in Liverpool’s Fulwood Park in 1985 for £75,000.

“The property market was in the doldrums at the time so the house presented a good opportunity for accommodation and investment – but I got planning permission agreed first from the local authority,” he said. “As the house was a listed building the process wasn’t easy, but my plans were sympathetic to the property’s character, and the application went through.”

Mr Cass paid £250,000 for renovations which took about a year. As the project was a large home made into two smaller ones which had their own access, each property has a separate freehold. But leasehold and freehold arrangements will vary according to the arrangement.

Each separate residential home has to be recorded with the Land Registry. If your home was sold or even remortgaged since the mid-1990s, it will have come under compulsory registration. But as soon as it becomes two homes with the purpose of selling off the new one, you will need to apply for a “transfer of part” or – if you are retaining the home and renting it instead – a “leasehold registration”. In either case, the application will be made through your solicitor and fees are relatively minor. For example, a new £200,000 home would cost £200 to register.

What about value, is it worth it?

But whether you rent or sell the newly built property, capital gains tax would be incurred on its sale. This is because the extra property would constitute a second home, and one you never lived in. However, when you downsize the potential profit could make this worthwhile. Having moved into the first home, Mr Cass rented out the second for the first 18 months before selling it and repaying a large chunk of his initial outlay. The same property sold again three years ago for £1m, while the half Mr Cass still lives in today is valued at £1.2m.