Property prices in Australia are forecast to keep rising, albeit at a slower pace in 2025 than what we saw last year. PropTrack predicts national dwelling values will increase by up to 4% in 2025, slightly less than the 5.5% growth seen in 2024.
With these increases, many parents are exploring creative ways to help their children buy a house.
One possible solution is using your super to buy property for your children. This can be done in several ways.
Option 1: Using your self-managed superannuation fund (SMSF)
An SMSF home loan allows individuals to purchase investment property, but strict rules govern how the property can be used. For instance, you cannot gift or rent the property to family members. However, there are indirect and long-term ways to support your children using your SMSF.
For example, if you have identified a property that could be suitable for your children later in life, your SMSF can purchase the property as an investment. This property must be rented to unrelated third parties while it is held as an investment. The rental income, along with your superannuation contributions and other SMSF income, can help repay your SMSF home loan.
Later, when you retire and your SMSF enters the pension phase, the property can be sold to your child at market value. Depending on the circumstances, the sale may be completely exempt from capital gains tax or taxed at a concessional rate.
Another option is to use your SMSF to buy an investment property that generates rental income and capital growth. Once you retire and enter the pension phase, you can sell the property and use the proceeds to help your children purchase a home.
Capital gains tax advantages
One of the key benefits of choosing to buy an investment property for your children through your SMSF is the possibility of tax advantages when it comes to capital gains tax (CGT). While CGT is a factor when selling investment assets, SMSFs have substantial concessions that can significantly boost your returns.
During the accumulation phase, any capital gains are taxed at 15% and holding the property for longer than 12 months may reduce the taxable portion to two-thirds of the gain.
During the retirement phase, if all SMSF members are in this phase, capital gains on the sale of the property may be completely tax-free.
These concessions allow you to maximise the value of the proceeds from the sale. If you sell the property to your child, your SMSF can use the proceeds to make lump-sum payments to you in retirement. You could then gift that money to your child, effectively paying off what they spent on the property.
Or, if you sell the property as an investment, your SMSF can pay you out in a lump sum which you can then gift to your child for them to purchase their own property.
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Options 2: Accessing your super at preservation age
Once you meet your preservation age (between 55 and 60, depending on when you were born, or 65 if you’re still working) you can access your superannuation savings. Typically, you are allowed to withdraw your funds as a lump sum, regular income stream or a combination of both.
This strategy gives you several options to help your children buy a house. First, you can use some of these funds to help your children purchase a home, either as a gift, a contribution towards their deposit or as a loan.
Second, you can use a lump sum withdrawal to pay off your own mortgage, freeing up cash flow that can then be directed towards helping your children.
Third, with your mortgage paid off, you may have improved financial stability and therefore be better positioned to act as a guarantor for your children’s home loan.
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What to consider when using super to help your children buy a house
Seeking professional financial advice is essential before making any decisions related to using superannuation to help your children buy a house. A qualified financial adviser can assess your individual circumstances, explain the complexities of each strategy and help you make informed decisions.
An experienced mortgage broker will also be able to help you find the loan product that suits your and your kids’ needs, financial situation and long-term goals.
Before exploring any of these strategies, it’s crucial to weigh the risks and ensure compliance with Australian superannuation laws. Selling or transferring properties or withdrawing super funds can trigger taxes, such as capital gains tax or income tax, which could reduce the financial benefit.
It’s also important to consider the estate planning implications of any strategy involving superannuation and property. This includes ensuring your wishes are documented in a will.
Finally, consider the long-term impact on your own retirement savings. It is recommended that you do not jeopardise your own financial security in retirement.
Are you interested in helping your children buy a house? Speak to Shore Financial about your finance options. Call us on 1300 416 700, email us on info@shorefinancial.com.au or fill in this online form.
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