Westwood Conveyancing

   

Downsizing your Family Home

Understanding the financial implications of downsizing

… what to know before you sell

Downsizing from the family home can be an appealing idea for many reasons - more simplicity, the ability to free up capital and less rooms to clean (and heat!).

But before calling the local real estate agent, it's worth understanding the financial implications so you can plan your next move carefully.

Downsizing and selling your family home is a big decision, so what do you need to consider?

House vs. apartment

If you're moving from a house to an apartment, the driver tends to be more lifestyle-related.

It's certainly appealing to know the lawns and odd jobs will get done without you ever needing to lift a finger, but it's also important to note that the long-term capital growth of apartments tends to lag behind houses.

While apartments can be more affordable and easier to maintain, they generally don't have the same financial return over time. For many, the trade-off is worth it in exchange for lifestyle or location, but it's important to factor in both emotional and financial considerations.

You also should make sure you have a good understanding of the capital works fund (or sinking fund) balance and upcoming works planned.

The last thing you want is to expect lower ongoing costs, only to be slugged with a special levy, because the building needs serious rectification works done and there isn't enough money in the strata kitty to fund it.

What happens to your Age Pension?

Your principal residence is exempt from the Age Pension assets test.

However, once you sell, the proceeds from the sale are treated differently. If you intend to use the money to purchase, build, or renovate a new home, the proceeds are exempt from the assets test for up to 12 months.

But they are deemed under the income test, meaning Centrelink will assess them as if they are earning income. It might mean a temporary reduction to your pension payments.

Don't forget transaction costs

Downsizing isn't cost-free. Some of the key expenses include:

• Real estate agent fees: Usually around 2 to 2.5 percent of the sale price.
• Stamp duty: This applies to your new property purchase and varies by state.
• Legal and conveyancing fees: Expect around $1,000 to $3,000 per transaction.
• Furniture removal: Costs depend on distance and volume, but can quickly add up.
• Repairs and styling: Getting your current home sale-ready often involves upfront outlays. If you style your house for sale, you may not be able to live in it during that period, meaning you may need to pay for a short-term rental until its sold.

These costs eat into the capital you free up, so it's worth crunching the numbers carefully.

Using the proceeds to boost Superannuation

If you're 55 years or older and have owned your home for at least 10 years, you may be eligible to make a downsizer contribution to your super fund.

This allows you to contribute up to $300,000 per person ($600,000 for a couple) from the sale proceeds without it counting toward your non-concessional contributions cap.

However, a few important caveats apply, including:

• You must meet eligibility rules, such as the home being your primary residence and owned by you (or your spouse) for at least 10 years.
• The contribution must be made within 90 days of settlement.
• You must notify your super fund using the correct downsizer form.

These rules apply among others, so it's worth confirming your eligibility before proceeding.

Downsizer contributions don't affect your total super balance until it is recalculated at the end of the financial year. However, they do count toward your transfer balance cap, which may impact how much you can move into the retirement phase of super (where earnings are tax-free).

Gifting proceeds?

If you're thinking about gifting money to family members, be aware of Centrelink's gifting rules.

You can gift up to $10,000 in one financial year and a total of $30,000 over a rolling five-year period. Anything above that is treated as a financial asset for five years and may affect your pension entitlement.

What about the rest?

If your new home costs considerably less, you might find yourself with additional money left over after covering expenses and contributing to your super.

You may then consider investing the remaining proceeds to help preserve or grow your assets over time. Just be mindful that any investments will be counted under both the income and assets tests for the Age Pension.

Need help? Get it.

Downsizing is a big deal. Not only because you'll need to sift through and cull a lifetime's worth of possessions with the kind of ruthlessness that would make Marie Kondo proud, but because it's often one of the biggest financial events someone undertakes, and there are many moving parts.

The right approach will depend on your situation, goals, health, family and support. Speaking to a financial adviser before selling your home can help you make the most of your options and avoid any unexpected Age Pension surprises.

This article is general advice only, all of the comments above do not take into account your objectives, financial situation or needs.

If you have any questions then please phone our office … thank you

Source  :  Downsizing your family home: What to know before you sell

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