If you have a traditional water heater with metal venting, you may
have to reduce the chimney flue size to get the proper draft for the
water heater. B-vent does not need a liner. Clay lined chimneys need
a liner.

But now that the furnace is out of the picture, your flue size is
determined strictly by the btu's of the water heater and the height of
the chimney. It may be oversized.

If you have to reduce the size of the flue, you may want to consider
putting that same money towards upgrading the water heater to a high
efficiency unit that vents out the side of the house in PVC.

Your next water heater will most likely be a high efficiency unit
anyways, so why waste money modifying your old flue?

Bottom line, check local codes for venting requirments for your size
water heater.