BT’s technical services team regularly answers questions on superannuation strategies from advisers. In one scenario, a single age pensioner is concerned about the financial ramifications of selling their home to relocate.
“I’m a single age pensioner and looking to relocate closer to my daughter and her young family. If I sell my home, does that mean I will lose my age pension immediately? I plan on buying a new home, however I’m not sure for how much, or how long this process might take!”
Your principal home is an exempt asset for income support means testing. This means that, while you are living in the property, it won’t count as an assessable asset when determining your rate of age pension.
For various reasons, there are times where you might look to sell your home to move closer to family (as you are), or perhaps to upsize, downsize or even travel for an extended period.
When you do sell your home, in the first instance, the proceeds of sale would be an assessable asset. Depending on your circumstances, you might look to contribute some of the proceeds to superannuation, purchase an income stream or simply keep your cash in the bank until you find a new home.
Each of these actions will have a different impact on your age pension, depending on a few factors unique to your personal circumstances. However, there is a specific concession which can apply to the sale proceeds from your former home.
Where you intend to purchase, build, repair or renovate a new principal home, your former home sale proceeds are exempt under the assets test.
Importantly, this exemption only applies to the proceeds you intend to use for this purpose.
For example, let’s say you sell your home for $850,000. You intend to buy a new home near your daughter for around $550,000 and save the remainder. In this case the $300,000 you are not intending to spend on a new home would be assessed as an asset immediately.
For home sales from 1 January 2023, the asset test exemption can apply for up to 24 months (and up to 36 months under limited extensions), or until such time as you purchase a new home; the sale proceeds you intended to apply to building, renovating or repairing are completed; or you no longer intend to buy a new home.
Under the income means test, there are additional concessions. While any amount of sale proceeds intended for the above purpose held in a financial investment, such as cash at bank, are subject to deeming, the deeming rate that applies is capped at the lower deeming rate (currently 0.25 per cent).
You may also continue to be assessed as a home owner during the exemption period.
In your case, if you don’t know how much you might spend, you may be able to apply the exemption to the entire sale proceeds, and for up to 24 months. This would limit the impact to your age pension under the asset means test, however your income would increase under the deeming rules. If you are income-tested, this may result in a reduction in your age pension.
Best of luck with your next move.
Tim Howard is an advice technical and strategy consultant at BT.
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