Selling Your Home for Aged Care: What You Need to Know

The family home is usually the biggest asset people own, and the question of what to do with it when moving into aged care is often the hardest financial decision families face. Here's what actually happens if you sell it, and why the answer is rarely straightforward.

Why this decision matters so much

Your home has a special status under the aged care means test:

• If a protected person lives there: The home is fully exempt from the assets test
• If nobody qualifies: Only the first $210,555 counts as an asset (the rest is ignored)

The moment you sell, that protection disappears. The sale proceeds become fully assessable, with every dollar counting. This can push you from full pensioner to part pensioner to self-funded retiree, each step increasing your aged care fees.

What the means test does with sale proceeds

When you sell your home:

1. The house itself is no longer an asset (you don't own it anymore)
2. The money from the sale sits in your bank account, fully assessable
3. If you invest it, any returns are also assessable income
4. Your Age Pension may be reduced under both the income test AND the assets test

Example: Margaret owns a home worth $800,000. She's currently a part pensioner because only $210,555 of the home counts. She sells the home and puts $800,000 in the bank.

• Before: assessable assets include $210,555 (home cap)
• After: assessable assets include the full $800,000

Her pension drops significantly, and her means-tested aged care fees increase. Her total financial position got worse, not better.

The RAD loophole

There's one big exception that can make selling worthwhile: the RAD is not an assessable asset.

If you use the sale proceeds to pay a Refundable Accommodation Deposit (the lump sum for your room), that money stops counting for the means test. So:

1. Sell home, receive $800,000 in bank (assessable)
2. Pay $500,000 as RAD (RAD is NOT assessable)
3. Bank balance drops to $300,000 (still assessable, but much lower)

This can actually increase your Age Pension compared to keeping the home, because:

• Home (before): $210,555 counted
• RAD (after): $0 counted
• Bank (after): $300,000 counted
• Net assessable: $300,000 vs $210,555 (still higher, but close)

And you've eliminated the daily accommodation payment because you've paid it all as RAD.

The three main scenarios

Scenario 1: Sell and pay RAD

Best for: People with a high-value home, no partner staying behind, wanting to optimise pension and eliminate daily accommodation costs.

Watch out for: Capital gains tax on investment properties, real estate commission, the emotional cost of losing the family home.

Scenario 2: Keep and rent out

Best for: People who want to retain the home as an inheritance or who expect the property to appreciate.

Watch out for: The home becomes assessable (no exemption when vacant or rented). Rental income counts as assessable income. Property management costs. Tenant risk.

Scenario 3: Keep and leave vacant

Best for: Short-term care stays (respite) or if you expect to return home.

Watch out for: After 2 years, the home is no longer exempt for Age Pension purposes and becomes assessable. Ongoing costs (rates, insurance, maintenance) with no income.

Worked example: Margaret's options

Margaret is 78, single, owns her home outright ($800k), has $150k in super and $40k in bank. She needs residential care with a $500k RAD.

Option A: Keep the home (vacant)

• Home: assessable at $210,555 (cap)
• Super + bank: $190,000
• Total: $400,555
• Part pensioner, fees of ≈$75,000/year
• Home ongoing costs: ≈$8,000/year
• Still paying DAP on accommodation: $41,600/year
• Total year 1: ≈$124,600 (plus home held in estate)

Option B: Sell, pay RAD

• Home sold: $800,000 (minus ≈$20,000 commission = $780,000)
• Pay $500,000 as RAD
• Remaining: $280,000 + existing $190,000 = $470,000 liquid assets
• RAD doesn't count as an asset
• Part pensioner (slightly better than A)
• Fees of ≈$55,000/year (no accommodation because RAD paid)
• Total year 1: ≈$55,000 (plus $500,000 RAD to return on exit)

Option B saves Margaret ≈$70,000/year AND the RAD is refundable when she leaves. The downside is the family home is gone.

What if your partner stays?

If your partner (or other protected person) continues living in the home, keeping it is almost always better because the home is fully exempt from the assets test. Selling would:

• Remove the exemption
• Make all the proceeds assessable
• Reduce the pension for both you AND your partner
• Often increase aged care fees significantly

In this case, you fund aged care from other assets (super, investments, savings) and leave the home untouched.

Capital gains tax

Your principal residence is generally CGT-free, but there are traps:

• If you've been renting it out: CGT applies pro-rata for the rental period
• If it's been vacant for more than 6 years and you've owned it for less than 6 years before moving out: the "absence rule" may not fully exempt you
• If it's an investment property (not your primary residence): Full CGT applies

Talk to an accountant before selling if you're not sure.

Common mistakes

• Selling before understanding the means test impact. You can't "un-sell" a house.
• Assuming the family home is always exempt. It's only exempt if a protected person lives there.
• Forgetting the RAD loophole. If you're going to sell, paying the RAD restores most of the benefit.
• Not modelling multiple years. A decision that looks worse in year 1 might be better over 5 years.
• Making an emotional decision in a crisis. Hospital discharge is not the time to sell the family home.

The bottom line

Selling the home is a major financial decision that can go either way. The key variables are:

1. Is there a protected person staying? If yes, keep the home.
2. Do you need to pay a RAD? If yes, selling to pay it may be optimal.
3. What's the long-term impact on your estate? Project 5-10 years to see the full picture.

Don't make this decision without modelling the alternatives. Our calculator shows you sell vs keep vs rent out vs HEAS side-by-side, with real numbers projected over the years you're in care.