Selling an investment property after retirement - what to consider

Planning to sell an investment property after retirement can be a pivotal financial decision. It's a moment when you might be looking to streamline your real estate portfolio or finally capitalise on the value of your asset.

In this article, we'll explore the important considerations that come into play when selling an investment property in retirement. 

We'll delve into topics like whether retirees have to pay capital gains tax, the implications of tax when selling an investment property after retirement, and the pros and cons of selling before retiring.

Do retirees have to pay capital gains tax?

It’s a common misconception that pensioners are exempt from paying any sort of tax because of their retirement status. In Australia, retirees do in fact still have to pay capital gains tax (CGT) on assets they sell.

Whether you are bound to pay CGT is more so dependent on your unique circumstances rather than your age or life stage. 

Capital gains tax exemptions 

Here are some exceptions that may excuse you from having to pay CGT. 

• If your property was acquired before 20 September 1985: this is the date that CGT was introduced, meaning that properties acquired before this date are exempt
• If you are selling a primary place of residence (PPOR): this rule acknowledges that your main residence does not share the same purpose as something like an investment property

Tax on selling an investment property after retirement

Like everyone else, the tax rate on your investment property after retirement is dependent on your overall taxable income. This can come from income streams such as capital gains, dividends or other earnings.

If you’ve happened to hold your property for less than a year, the entirety of your capital gain will be subject to capital gains tax using your respective tax rate. 

However, in a more likely scenario, holding the property for more than a year means that only 50% of the gain will be liable to capital gains. 

For example, a retiree with a tax rate of 20% and capital gain of $100,000 could end up paying either $20,000 or $10,000, depending on how long the property was held. 

Be sure to talk to a reliable agent today to navigate the process of selling.

Retiring before your preservation age

Your preservation age is the earliest age you can access your super (unless exempted through unique circumstances). Withdrawing from your super before this age can result in additional fees and tax liabilities. 

Retiring before your preservation age can also potentially require you to do some more financial planning to stay afloat without access to your super of pensions (which begins when you are aged 67).

However, if you’ve retired before your preservation age and sold your investment property, you won’t have to worry about any sort of implications on your capital gains tax.

Should you sell an investment property before retirement?

Whether you should sell an investment property before retirement ultimately depends on your personal  goals and financial position. Here are some pros and cons you should consider below:

Pros of selling a property before retirement 

• Bolster your retirement savings: the proceeds from the sale can be invested in more tax-efficient assets or contribute to your superannuation.

Read more about selling your investment property to put into your super. 

• Reduced property maintenance requirements: by selling an investment property, you'll no longer be responsible for ongoing maintenance, repairs, and other property-related expenses. This can free up funds for your retirement lifestyle.
• Flexibility and freedom: the sale of the property can provide greater financial flexibility in retirement. You can use the proceeds to pay off debts, invest in more diverse assets or go travelling around the world.

Cons of selling a property before retirement 

• Discontinued rental income: selling the property means giving up rental income, which could have been a valuable source of cash flow during retirement.
• Prudent financial planning: the decision to sell an investment property before retirement will involve a lot of careful evaluation to plan for the many years ahead.
• Loss of potential future gains: investment properties are often considered long-term investments. If you believe the property's value will continue to appreciate, selling it early might mean missing out on potential future gains.