Happiness doesn’t just have one address


The kids are gone…finally and suddenly you have to clean a monstrosity of a house which probably doesn’t tie in with retirement being a fun and relaxing time. That is probably one less day of bowls, bridge, golf, etc. and maybe a noose around the neck if you want to travel frequently. Downsizing is a big decision to make emotionally & economically. Here I’ll explain the financial implications & what needs to be considered before packing up the family home.

We assist retired clients with this decision making process on a regular basis. The important thing is to make sure all issues are dealt with before transactions occur. So if you’re downsizing your house, here’s our Checklist of the top five things you need to consider:
1. Tax: there might be Capital Gains Tax payable if you have rented out your home for a period or run a business from home, but usually there is no tax payable. If there is tax payable this means you will have less to spend on a new residence. We make sure your accountant provides advice on this before proceeding.
2. Transaction costs: has it been a while since you sold a house? Check the costs first as you may be surprised. Again, this means less money for a new residence and/or investment. We can estimate these for you.
3. Superannuation: the federal government has proposed changes that will greatly benefit those over age 65 who are considering downsizing their home. If legislated, from 1 July 2018, those over 65 who sell their residence (whether or not they are buying another residence) can make a Downsizer contribution to superannuation (technical speak is non-concessional contribution) of up to $300,000 per person, or $600,000 for a couple. You have had to have owned the home for at least 10 years. For some this will be a great new opportunity.
4. Centrelink: downsizing will most likely have an impact on your Age or Service pension. One of the implications is that Centrelink and the Department of Veterans’ Affairs (DVA) will not assess the proceeds of the sale as an asset under the Assets Test for 12 months, assuming you are intending to buy again, however, the proceeds will be assessed under the Income Test. The net amount received will be deemed like any other Bank investment. There are many other rules and potential implications which most people are not even aware exist.
5. Advice: We often model different scenarios for clients who are making this decision. In that process we address all of the above points as well as often addressing the emotional issues our clients might face. The result is they have the information to make informed decisions.

It is a big decision to make, particularly if you have been in your home for many years and it holds great memories. If you have a health condition, this might be an even more important decision and one made sooner rather than later.

For example, we have a client who was living in poverty in a $7m riverside mansion as she had very little in the way of investments. It took seven years to encourage her to sell it and now she is living a very lovely retirement in a similarly beautiful $3m home with income from $4m providing a great lifestyle. Your figures may not be the same as the above client, but quality advice is just as important.

Information supplied by Evan Grespos, Financial Strategist, Logiro.