Downsizing the Family Home: A Guide
With current cost of living pressures, the prospect of rising interest rates and a shortage of stock on the housing market, a growing number of Australians are considering the possibility of downsizing the family home.
For retirees and empty nesters who might find their large family home a financial and physical burden, downsizing can offer significant benefits.
Why Downsize?
- Financial Benefits
One of the most compelling reasons to downsize is financial. Selling a larger home and moving to a smaller, more affordable property can free up significant capital. This can be used to boost retirement savings, pay off debts, or invest in other ventures.
- Reduced Maintenance
Larger homes require more upkeep. From cleaning to repairs, the effort and ongoing cost associated with maintaining a big house can be substantial. Downsizing to a smaller property reduces these responsibilities, allowing more time and resources for leisure and hobbies.
- Energy Efficiency
Smaller homes typically have lower utility bills so heating, cooling, and lighting a smaller space is not only more economical (at a time when power prices are surging), it is also more environmentally friendly and sustainable.
- Lifestyle Improvement
Downsizing often means moving to a location that better suits one’s current lifestyle. This could mean moving closer to the city, either for leisure or employment reasons, enjoying a sea change in a coastal town, or moving to a community with amenities better suited to seniors.
Government Incentives to Downsize
There are a number of government incentives specifically tailored to older Australian who may be considering downsizing their home.
1. Downsizer Contribution to Superannuation
From July 2022, anyone aged 60 years and over who meet the ATO’s downsizing eligibility criteria can make contributions of up to $300,000 per person ($600,000 per couple) into their superannuation account from the proceeds of the sale (or a partial sale) of their home.
Until recently, the criteria set by the government only allowed people aged 65 years or older to make superannuation contributions when downsizing. Legislative amendments in July 2022 lowered the age to 60.
There are certain other eligibility criteria that must be satisfied for anyone wanting to boost their super when they downsize, including:
i. The property must be located in Australia and have been owned by the individual or their spouse for at least 10 years and the sale of the property must be exempt, or partially exempt, from capital gains tax.
ii. Anyone making downsizing contributions into superannuation cannot have previously made a downsizer contribution into their super fund from the sale of another home.
iii. As part of the process, when making the contribution to your superannuation you must provide the “Downsizer contributions into super form” to your superannuation fund, which can be downloaded from the ATO website.
2. Stamp Duty Concessions
In NSW, there are stamp duty concessions available for pensioners and older Australians looking to downsize. These concessions can significantly reduce the cost of purchasing a new, smaller home.
3. Pension Loan Scheme (PLS)
This scheme allows Australians of pension age to obtain a government loan using their home as security. The PLS can provide additional income to fund the transition to a smaller home or cover the costs associated with moving.
Considerations When Downsizing
Downsizing the family home is not a decision that should be taken lightly. Whilst it can be a liberating and financially prudent decision for many, it will also require careful planning and consideration.
For example, before taking any action it would be wise to:
- Assess Your Needs
Determine why you want to downsize and what you hope to achieve. Consider your financial situation, health needs, and lifestyle preferences.
- Plan Your Finances
Calculate the potential sale proceeds from your current home and explore the costs involved in buying and moving to a new property. Factor in government incentives and any potential stamp duty savings.
- Choose the Right Location
Research areas that suit your lifestyle and budget. Consider proximity to family, healthcare facilities, public transport, and amenities.
- Seek Professional Advice
Consult with financial advisors, real estate agents, and legal professionals to ensure a smooth transition. Think about the potential impact on your family, even down to your estate planning goals and how it might affect your beneficiaries in the future. Open communication with your family about what you would like to do and why is important.
If you would like advice on downsizing and selling your home, contact the property team at CDQ Solicitors for assistance on ph: 02 8556 0130.
Back