Navigating Inheritance and the Age Pension: Key Considerations
Inheriting property can be both a blessing and a financial puzzle, especially for those receiving the Age Pension. It’s essential to understand how an inheritance can impact your pension eligibility, as well as the financial implications that come with it.
How Inheritance Affects Age Pension Eligibility
The Age Pension in Australia is means-tested, meaning that your financial situation will determine how much you receive. An inheritance, particularly real estate, can significantly alter your means test results.
Asset Test: When you inherit property, its value is considered an assessable asset. If you keep the property as an investment, it counts towards the Centrelink asset test. However, if you move into the inherited property as your primary residence, it may be exempt from this test. This exemption can be a strategic advantage for pensioners.
Income Test: If you rent out the inherited property, the rental income will be included in your income test assessment. Even if you choose to sell the property and invest the proceeds, this could affect your deemed income calculations. It’s crucial to understand how these tests work to avoid any surprises.
Strategies to Minimise Impact on Pension Entitlements
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Live in the Inherited Property: By using the inherited home as your primary residence, you can keep it exempt from the asset test. This strategy allows you to enjoy your inheritance without jeopardising your pension.
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Gift Some of the Inheritance: Centrelink allows you to gift up to a certain amount each year without affecting your pension entitlements. This could be a smart way to manage your inheritance while still benefiting from the Age Pension.
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Consider a Family Trust: Moving assets into a family trust or making a superannuation contribution can help reduce the impact on pension eligibility. This option requires careful planning, so its advisable to seek professional guidance.
Tax Considerations When Inheriting Property
In Australia, there is no inheritance tax, but be aware of capital gains tax (CGT) if you sell the inherited property. If it was the deceased’s main residence, CGT may be exempt if sold within two years. You should also consider ongoing costs like land tax and council rates when planning your finances.
Final Thoughts
Inheriting property while on the Age Pension requires thoughtful planning to minimise financial impact and preserve your entitlements. Understanding Centrelink’s rules and structuring your inheritance wisely can help you manage your finances effectively.
