Henry Vincent, 37, died following a struggle in the botched raid at the south-east London property of Richard Osborn-Brooks on Wednesday.
Mr Osborn-Brooks, 78, was arrested on suspicion of murder and released on bail, but was told no action would be taken on Friday, the Metropolitan Police said.
Scotland Yard’s decision to drop the investigation followed a consultation with the Crown Prosecution Service.
The force said in a statement that it had informed Vincent’s family of the development and explained to them the reasons why no charges will be brought.
Detective chief inspector Simon Harding said: “This is a tragic case for all of those involved.
“As expected with any incident where someone has lost their life, my officers carried out a thorough investigation into the circumstances of the death.
“We have approached the CPS for early investigative advice, as required under the guidance. We have received and considered that advice, and, at present - on the evidence available - we will not seek a charging decision. Therefore, no further action will be taken against the man.”
The arrest of the 78-year-old provoked outcry from neighbours and an online fundraising campaign which gathered hundreds of pounds in several hours.
Addressing the controversy, Mr Harding continued: “Whilst there might be various forms of debate about which processes should be used in cases such as this, it was important that the resident was interviewed by officers under the appropriate legislation of the Police and Criminal Evidence Act; not only for the integrity of our investigation but also so that his personal and legal rights were protected.
“There will be an inquest in due course which will further review the circumstances into Mr Vincent’s death in a public forum.
“Our thoughts remain with the families whose lives have been devastated by these events.”
Tributes have been paid to Vincent, from Kent, by family and friends on social media, with one reading he will “never be forgotten”.
In January, he was named and pictured by Kent Police investigating a distraction burglary when jewellery and valuables were stolen from a man in his 70s.
Officers were called to reports of a burglary in progress at 12.45am, after two men entered the house on South Park Crescent in Hither Green, south-east London.
One suspect, armed with a screwdriver, forced the homeowner into his kitchen when he discovered them, while his accomplice went upstairs, the force said.
Detectives believe a struggle ensued between “one of the males and the homeowner” and the intruder was stabbed in the upper body. It is unclear what implement was used to deliver the fatal blow.
Both men then apparently attempted a getaway, but Vincent collapsed on nearby Further Green Road.
An accomplice attempted to drag him towards a van but eventually left, according to a witness.
Paramedics from London Ambulance Service took him to a central London hospital where he died at 3.37am.
The second man has not been found and remains wanted by police.