Considering selling your SMSF Property?
With the residential property market on an upward spiral, investors holding property assets in self-managed superannuation funds are wondering whether the time is right to sell or hold.
With any investment decision of this nature, it is wise to consider the consequences or implications so you are not basing your decision on a projected sale price.
Don’t simply be persuaded by what the real estate agent is telling you. Ensure selling the property makes sense from an investment and retirement planning perspective.
First, the tax consequences of selling a property in your SMSF are important, particularly if you are approaching retirement. Selling while drawing a pension from your SMSF will allow for any capital gain to be disregarded if your member balance is within the transfer balance cap.
If the property has been specifically segregated to your member balance or account, and there is more than one member in your SMSF, any sale proceeds will relate only to your transfer balance cap.
The timing of when you start a pension during the year and sell the property is also important if your SMSF has a mixture of pension and accumulation assets. This might be due to your member balance being above $1.6 million or one member being in pension and another in accumulation.
You will need to make sure your pension is in place before you sell the property, and ideally in pension for the whole year if you have a mixture of pension and accumulation during the year, to maximise the tax-effectiveness.
If your existing property asset is supported by a borrowing in your SMSF, you should also consider the consequences of selling the property and paying back that loan. The market for bank loans to SMSFs has changed dramatically from when these loans first became available, with most of the large banks no longer offering an SMSF loan facility.
If you sell the property and pay back the loan, the reality is that you may not be able to secure another loan for any future property purchase, and your ability to have leverage within your SMSF will be lost.
If you are considering the time may be opportune to sell the property to potentially take advantage of a “hot” market you will need guidance as to the possible taxation consequences of mistiming this which can include the loss of planning opportunities. Investment decisions should always be run past your licenced professional