What happens to the family home: sell, keep, rent it out or family moves in

The family home is often more than a house. It holds memories, and for many people it’s also their biggest asset. When someone moves, to a smaller place, a retirement village, an aged care home or in with family, the question of what to do with it comes up quickly.

There are four common paths: sell it, keep it empty for now, rent it out, or let family live there. Each one can affect the Age Pension, aged care fees, tax and family relationships in different ways. There’s no single right answer, and what suits one family may not suit another.

And staying put is a full answer too. Many people stay in the family home for life, with help coming in. This guide is for when a move is on the cards, now or later.

This is general information, not advice. The rules are detailed and depend on your situation. Before deciding, talk to the Financial Information Service at Services Australia (free, on 132 300) and, for personal advice, a licensed financial adviser.

While you live in it, your home isn’t counted in the Age Pension assets test, along with up to 2 hectares of land on the same title. Homeowners have a lower assets limit than non-homeowners, to balance this.

If you move into aged care, the home is generally not counted for 2 years from the date you enter care. If your partner still lives there, it stays exempt for as long as they do, and the 2 years only start when they leave. After the exemption ends, the home is counted as an asset and you’re treated as a non-homeowner.

If you move out for other reasons, such as travelling, the home can generally still be treated as your home for up to 12 months. Moving out to receive care, including care in a family member’s home, or to give substantial care to someone else, can count as a care situation, where the 2-year rule can apply instead. Services Australia decides which rule fits.

You must tell Services Australia about changes to your home, such as selling or renting it out, within 14 days.

Once the home is sold, the money usually counts as an asset for the pension, unless an exemption applies.

For homes sold from 1 January 2023, the part of the sale money you plan to use to buy, build or renovate your next home can be left out of the assets test for up to 24 months. In some cases, a further 12 months is possible, to a maximum of 36. Money you don’t plan to put into a new home counts in the usual way.

Sale money in the bank or invested also counts under the income test through deeming. Deeming means Services Australia assumes your financial assets earn a set rate of income, whatever they actually earn. Money set aside for a new home is deemed at the lower rate only. Deeming rates change from time to time, and Services Australia publishes the current ones.

If the sale money goes towards an aged care home, the two tests differ. A refundable lump sum paid for an aged care room is generally not counted for the Age Pension, but it is counted in the aged care means assessment. If it goes towards a retirement village, the size of the entry payment decides whether you’re treated as a homeowner. Selling isn’t required to pay for aged care: daily payments are always an option.

Some people keep the home because they hope to return, because it’s worth more to the family than the money, or because the market isn’t right. Keeping it empty has costs: rates, insurance (check the policy covers an empty home), upkeep and security.

Renting it out brings in income, but that income counts. For the Age Pension, net rent counts as income. For people who entered aged care from 1 January 2017, this applies even during the 2-year exemption. In the aged care means assessment, net rent from the home also counts as income, and the home itself may count up to a capped value (see the next section).

Rent is also taxable income, and being a landlord comes with obligations under tenancy law in Queensland and NSW, such as repairs, bonds and notice periods. Many people use a property manager.

Some people keep the home and borrow against it to help with costs, for example through the government’s Home Equity Access Scheme, which is open to people of Age Pension age. The Financial Information Service can explain how it works.

Sometimes a son, daughter or grandchild moves in, perhaps as a carer, or a family member who already lives there stays on. This can keep the home in the family and give someone a place to live, but it has its own rules.

For aged care fees, the home isn’t counted at all while a “protected person” lives there. That means your partner or dependent child; a carer eligible for an income support payment who has lived there with you for at least 2 years; or a close relative eligible for an income support payment who has lived there with you for at least 5 years. Otherwise, it’s counted up to a capped value.

For the Age Pension, a family member living there generally doesn’t extend the exemption the way a partner does. The usual time limits apply, then the home counts.

Transferring the home to family is a bigger step. Giving away assets, or selling them for less than they’re worth, can still count for the pension: gifts above $10,000 in a financial year, or $30,000 over five financial years, keep counting as your asset for 5 years. In both Queensland and NSW, a transfer can also attract stamp duty based on the home’s value, even if no money changes hands, unless an exemption or concession applies, and it can have tax effects for both sides. Get legal and financial advice before any transfer.

Generally, there’s no capital gains tax when you sell the home you’ve lived in the whole time you’ve owned it, along with up to 2 hectares of land. This is called the main residence exemption.

If you move out, you may be able to keep treating it as your main residence for tax. If it isn’t rented out, this can continue indefinitely. If it’s rented out, it can generally continue for up to 6 years for each period away. You generally can’t treat another home as your main residence at the same time, apart from a short overlap when moving. When a home is inherited, it can often be sold within 2 years of the owner’s death without capital gains tax, if conditions are met.

The downsizer contribution lets people aged 55 or older put up to $300,000 each from the sale of their home into super, outside the usual caps. You or your partner must have owned the home for 10 years or more, the sale must qualify at least partly for the main residence exemption, and the contribution must generally be made within 90 days of receiving the sale money (usually at settlement), with the ATO form. It can only be used once. Money in super can affect the pension, so it’s worth getting information first.

Tax rules have many conditions. The ATO website explains them, and a registered tax agent or accountant can apply them to your situation.

The family home can stir strong feelings, especially between siblings. One child may be living there, or caring for a parent. Another may feel left out. Unspoken expectations about inheritance can turn into hurt or disputes later.

It helps to talk openly, with everyone who has a stake, and to keep the person whose home it is at the centre. Their wishes come first. Write down any agreement, such as who lives there, who pays what, and what happens if the arrangement ends or the home is sold. Review the will and any enduring power of attorney so they match what’s been agreed.

If anyone feels pressured into a decision about their home or money, free, confidential help is available from the national elder abuse line on 1800 353 374 (1800ELDERHelp). In Queensland, the Elder Abuse Prevention Unit helpline is 1300 651 192, and regional Seniors Legal and Support Services give free legal help. In NSW, Seniors Rights Service gives free legal advice to older people.

These are big decisions, and getting the order right matters. Free help is available, and paid advice can be worth it for personal recommendations.

• Financial Information Service, Services Australia: free information on how choices affect the pension and aged care fees. Call 132 300.
• Services Australia aged care line: questions about the aged care means assessment. Call 1800 227 475.
• My Aged Care: aged care assessments and the fee estimator. Call 1800 200 422.
• A licensed financial adviser, ideally one who specialises in aged care or retirement. Check the Financial Advisers Register on Moneysmart, and ask about fees up front.
• A solicitor, for transfers, family agreements, wills and powers of attorney.
• A registered tax agent or accountant, for capital gains tax and the downsizer contribution.