Life Tenancies: How do they work, and are they worth it?By Angelica Malin
If you are aged 60 or over, you could find the right home to retire in through a life tenancy. For those looking for a long-term investment, life tenancies also offer a new way to invest in property. Life tenancies essentially allow people to purchase the tenancy on a property that they will own for the rest of their lives. Even if the owner permanently vacates the property, for example if they move into care later in life, they still retain their joint ownership of the property. Wakeleyinvest.co.uk explain how life tenancies can be thought of as a joint ownership program, where the person who bought the life tenancy can do what they want with the property while they are still alive.
While this is a view of life tenancies from those who wish to live in one of the properties, it’s also important to consider them from an investor’s point of view. Life tenancies offer potentially some of the best property investments you could find in this area. There are a medium to long-term investment, and come with certain stipulations which we will look into later, however they also offer considerable incentives around capital growth and stamp duty exemption. Life tenancies are often seen as an investment that can grow in value over time with very little management required from the investor.
What are the benefits of a life tenancies?
For those looking for housing, life tenancies are only available to people aged 60 and over. People of this age can sometimes find difficulty in raising the necessary funds to get a mortgage or buy a property outright. A life tenancy can give you the security of knowing that you won’t be evicted from your property or priced out of it by increasing rents.
Due to their nature, life tenancies can often be purchased at a significantly reduced price compared to usual property prices. In fact, the average price of a life tenancy is 47% below the Royal Charted Institute of Surveyors vacant position valuation.
Are there any downsides to a life tenancy?
The main issue people take with life tenancies is that it leads to people being unable to leave property to their children when they die. While this may seem like a negative aspect of the tenancies, it should be remembered that life tenancies are a good option for older people who don’t own any property, but do hope to live rent-free and without having to worry about their landlord selling or altering their home for the rest of their lives. The massive savings they can make with a life tenancy also means they can concentrate on putting money away that the next generation of their families can inherit.
Life tenancies as an investment
Of course, if you are interested in property investments, many of the points noted above will make life tenancies an attractive proposition. Life tenancies are seen as medium to long-term direct property investments, and have the potential to drive capital growth. Investors can purchase prime residential property at significantly below that the RICS vacant possession valuation with life tenancies, with discounts typically upwards of 45%. Life tenancies are also exempt from the 3% stamp duty. Investors will only pay the standard rate of stamp duty if there investment is in excess of £125,000.