In retirement, we often speak to clients who want to downsize their home. Whether it’s because the children have long since moved on and extra bedrooms are no longer required, the maintenance of the garden is becoming an issue or simply to free up capital to supplement retirement income there are many reasons to consider downsizing a home in retirement.
Thanks to new legislation there are also financial incentives to downsizing a home via a new Government policy legislated to commence from 1 July 2018.
For most retirees, the most tax-effective vehicle for retirement savings is via the nil tax environment of a superannuation pension. However, in the past retirees over 65 and all individuals over 75 were unable to contribute to Superannuation and access this advantageous tax structure. Under the new legislation, should you downsize your home you may be eligible to contribute up to $300,000 each ($600,000 per couple) to Superannuation regardless of age and/or work status.
Apart from selling the home the other eligibility criteria to make downsizer contributions include:
• You must be over 65 years of age
• The sale/contract date must be after 1 July 2018. This is not the settlement date so for those currently considering selling their home, or have it on the market it may be worth delaying for a couple of months!
• The home must have been your primary residence for at least 10 years (therefore investment properties do not qualify)
• The downsizer contributions must be made within 90 days of receiving the sale proceeds
Interestingly, you are not required to purchase a new home with the proceeds, nor are the contributions limited to the changeover in home values. For example, if you sell your home for $500,000 and purchase another for $500,000 you can still make downsizer contributions using the money you may have invested outside superannuation (e.g. from an inheritance).
Whilst this may be of financial benefit to you in certain circumstances it is quite a technical area and everyone’s situation is unique! We suggest you come visit your Muirfield Adviser to discuss your own specific circumstances before you make any decisions. To book an appointment with your adviser to discuss this, or any other matter, please call our office or use our new online booking system via the button below.