Buying a house with your superannuation is possible, but there are some things you need to understand before doing so.
There are actually two parts to the question, ‘can I buy a house with my superannuation?’.
There is buying a house to live in as your home and then there is buying a house as an investment property, or maybe even a holiday house.
Depending on what you are trying to achieve, the answer might be different.
Can I Buy a House With My Superannuation To Live In?
If you plan on using your superannuation to purchase a house to live in, you must first withdraw however much you need from your super account into your personal bank account and then use that money to buy a house.
The most common forms of full conditions of release are ‘retirement’ and ‘reaching age 65’.
Retirement can include stopping work after reaching your preservation age with no intention of returning to full time or part time work, or having an employment arrangement come to an end after age 60. Click here to read more about the retirement definitions.
Reaching age 65 is self-explanatory.
Can I Buy a House With My Superannuation For Investment?
You are able to use your superannuation savings to buy an investment property or rental property; however, there are strict guidelines on how you must do this.
In order to buy a house or commercial property for investment using your superannuation, you would need to setup a Self Managed Superannuation Fund (SMSF), as most other superannuation funds have limited investment options that generally do not include direct property investments.
Furthermore, you need to ensure that the Trust Deed of the SMSF allows it, as well as the SMSFs Investment Strategy.
A SMSF is a superannuation fund managed by you, whereby you are the trustee of the super fund. There can be large costs associated with setting up and running a SMSF, as well as a myriad of administrative and legal responsibilities associated; so this is something you should research thoroughly before getting into.
Importantly, a property owned within a SMSF is unable to be used for personal purposes, unless it is business real property, which can be rented to your business, provided it is done at arm’s length and for the benefit of the members of the SMSF. Again, purchasing business real property within a SMSF has many rules and limitations, so you should do your research and obtain professional advice before exploring this option.
Can I Use My Superannuation For A House Deposit?
If you are wanting to buy a home to live in or a holiday house, you are unable to purchase this within a super account or SMSF. You would first need to have the ability to access your superannuation by meeting a superannuation condition of release and then withdraw it from super. However, see FHSS option below.
As a house deposit is only a portion of the total house cost, you might be able to withdraw enough from super while you are still working, provided you have reached your superannuation preservation age. This done by starting a TTR Pension, which allows you to withdraw up to 10% of your account balance each year. However, you should consider any tax payable on the withdrawal before doing so, particularly if you are under age 60.
Alternatively, if you are purchasing business real property or an investment property within a SMSF, you may be able to use the limited recourse borrowing arrangement (LRBA) provisions to borrow within the SMSF to purchase the property.
There are many risks and limitations involved in borrowing within super, so you should make sure you completely understand the process, costs, limitations and risks associated with this prior to borrowing or purchasing a property. The loan provider will also legally require you to seek advice from a financial planner before lending your SMSF any money.
Can I Use My Super To Buy My First Home?
You are unable to use your superannuation to buy your first home to live in, unless you have met a full superannuation condition of release, as noted above.
However, you can use the First Home Super Saver Scheme (FHSS) to save towards your home deposit. This is done by making voluntary concessional or voluntary non-concessional contributions into your super account, then applying for a release and withdrawing up to $15,000 plus earnings from any one year or $30,000 plus earnings across all years.
Voluntary concessional contributions include salary sacrifice contributions and personal concessional contributions. Voluntary non-concessional contributions are after-tax personal contributions. Click here to read about the difference between concessional and non-concessional contributions.
The benefit of the First Home Super Saver Scheme is that voluntary concessional contributions can reduce your personal income tax. Also, both types of contributions, when invested within super, will have earnings taxed at a maximum of 15%, which may be lower than your individual tax rate, allowing you to save for your deposit sooner.
Make sure you understand the FHSS rules in full before using it to save towards your first home. You can read more here.