Am I better off selling my investment property or my home to fund my retirement?

Answer

There is a lot to consider when deciding whether to sell your property and how the sale may affect your future income, your tax obligations and any entitlement to government benefits you may have.

Here are some things to consider before deciding whether selling your home or investment property is the right move for you.

Age pension entitlements

There are financial implications that may affect your age pension entitlements.

If selling your home, you can take up to 12 months—in some circumstances, longer— before the proceeds from sale are counted under the assets test. In the meantime any income generated by the proceeds from the sale of your home will be assessed under the age pension income test.

If you are selling your investment property, the money released from the sale of your investment property will be assessed under the age pension assets test and any income derived from the proceeds will be assessed under the income test. You can find out more from the Department of Human Services.

Capital gains tax

When you sell the home you live in, the proceeds from the sale will not be assessed as a capital gain so capital gains tax won’t apply. When you sell an investment property capital gains tax will apply to 50% of the profit; providing you’ve held the property for at least 12 months. If you’ve owned the property for less than 12 months, capital gains tax will apply to 100% of the profit.

Investing the proceeds in superannuation

There are strict contributions caps in super so you may not be able to invest all the proceeds without tax penalties. But the bring-forward rule allows you to contribute up to $540,000 (after tax) as one lump sum within a three-year period if you’re under 651.

Investing the money in super can be a tax-effective option because after you turn 60 any payments from your super are tax free. And if you start a pension using your super the income generated by your super pension investments is also tax free.

It’s worth considering the implications of each of your options before you sell. Talk with a financial adviser and use our home and retirement planner to get an idea of how much you could end up with and how your property could fit into your retirement plans.

Notes

1 Until 30 June 2014 the non-concessional super contributions cap is $450,000 within a three year period and from 1 July 2014 it will increase to $540,000.

 

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Important information

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It’s important to consider your particular circumstances and read the relevant Product Disclosure Statement or Terms and Conditions before deciding what’s right for you. This information hasn’t taken your circumstances into account.

This information is provided by AMP Life Limited. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. All information on this website is subject to change without notice.