After decades of paying off a mortgage, the idea of your home as an asset instead of an expense is a tremendous relief, particularly when it comes to supporting your finances in retirement. However many retirees are unaware of the financial implications of decisions made regarding the sale of a house and what it can affect.
Whether sentimental or financial, selling the family home is a major decision when considering a move into residential aged care. The decision doesn’t need to be a battle between the wallet and the heart; the right solution is dependent on your individual situation and there is no requirement to pay a refundable accommodation deposit (RAD) for aged care through a sale.
What should I consider?
To assist with a solution you will need to consider the following:
- impact of the home’s value on the size of RAD payable;
- whether the sale will impact Age Pension eligibility;
- suitability of the home for rental without significant expenditure on maintenance or updating;
- whether family members are prepared to undertake the necessary landlord responsibilities; and
- if one partner wishes to remain at home if the other moves into aged care.
The impact on pension entitlement is not the only financial consequence that requires thought. Sale of the family home can have significant tax implications, specifically for Income Tax and Capital Gains Tax (CGT).
If the home is leased, income from rent will be assessable for income tax purposes. If the home is sold, full CGT exemption is generally expected.
If the home is not sold and also not rented, it may be assessed as the main residence for an unlimited period of time.
If the home is rented, it may still be treated as the main residence however for only up to six years and a sale after that may have implications on CGT.
What can I do now?
It is important to understand how decisions made now and throughout your retirement will impact your wealth, your pension, tax implications and your final years of care. Seeking financial advice will help you stay informed and allow you to navigate any potential areas of concern with time and opportunities on your side.
Have you been through the decision making process for yourself or for your parents? What do you wish you knew beforehand that you know now?
This article has been sponsored by MLC. IT provides, what we feel, are valuable insights to help you make informed financial decisions in retirement. For more information click here.
Important information and disclaimer:
This article is intended to provide general information only and has been prepared by MLC Limited ABN 90 000 000 402 (AFSL number 230694) without taking into account any particular person’s objectives, financial situation or needs. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial investment or insurance decision.