Should you sell your home for aged care or a retirement village?

Deciding whether to sell the family home to fund a move into residential aged care or a retirement village is a complex choice, and one that balances financial calculations with deep emotional considerations.

For many Australians, the family home is not just a major financial asset but a repository of memories and a legacy for future generations.

Yet, the costs of aged care can be substantial, and understanding the financial implications—alongside Centrelink rules, resale costs and tax consequences—is critical to making an informed decision.

By 2050, over one-third of Australians will be aged 55 or older. With positioning for retirement identified in the Q2 2025 API Magazine Property Sentiment Report as Australians’ predominant financial investment strategy for the year ahead, the need to get that transition right is clearly crucial.

Aged care costs and the role of the family home

The cost of aged care in Australia is determined by Centrelink, based on an individual’s income and assets.

If a “protected person” resides in the family home when you move into care, the home’s value is exempt from aged care cost calculations. A protected person includes a spouse (including de facto), a dependent child or student, a close relative who has lived with you for at least five years and qualifies for Centrelink income support, or a residential carer who has lived with you for at least two years and is eligible for Centrelink support.

If no protected person occupies the home, its value is capped at $201,231 (indexed as of 2025) for aged care cost assessments.

If your other assets exceed this cap, you may need to pay the Refundable Accommodation Deposit (RAD), averaging around $450,000, or the equivalent Daily Accommodation Payment (DAP) at the current interest rate of 8.36 per cent, equating to $103.07 per day. You may also face a means-tested care fee, capped annually at $33,309 and $79,942 over a lifetime, on top of the basic daily fee of $61.96 and any extra service fees.

Selling the home isn’t mandatory to cover these costs.

Alternatives include using superannuation, investment income, or rental income from the property, though renting can increase your means-tested care fee and potentially reduce your age pension.

Family contributions are another option, but for many, selling the home becomes a practical choice if it’s otherwise left vacant.

Centrelink and pension considerations

For those receiving Centrelink or Department of Veterans’ Affairs (DVA) benefits, the family home’s status affects pension eligibility.

If a spouse occupies the home, it remains exempt from pension calculations. Otherwise, the home is exempt for up to two years after moving into aged care or until it’s sold.

After two years, if you still own the home, its full value counts toward the pension assets test, potentially reducing or eliminating your pension.

Notably, funds used to pay the RAD, including proceeds from a home sale, are exempt from pension calculations, preserving your pension entitlement.

The RAD is fully refundable when you leave aged care or pass away, ensuring the funds are returned to your estate and distributed per your Will. This refundability can provide peace of mind, but the decision to sell remains both financial and emotional, requiring careful consideration of long-term plans and family dynamics.

Resale costs in retirement villages

For those considering a retirement village rather than aged care, the financial structure differs significantly.

Retirement villages often operate under a “deferred management fee” (DMF) model, where residents purchase a lease or license to occupy a unit or villa.

Upon leaving or selling the property, the village operator typically retains a portion of the resale value, known as an exit fee or DMF.

This fee can range from 20 per cent to 40 per cent of the sale price, depending on the contract and length of residency, and is often deducted to cover refurbishment costs or as part of the operator’s business model.

For example, if you purchase a villa for $500,000 and the DMF is 30 per cent after five years, the operator could retain $150,000 upon resale, significantly reducing the funds returned to you or your estate.

Some contracts also include shared capital gains clauses, where the operator takes a portion of any increase in the property’s value, or conversely, you may bear the loss if the property’s value declines.

These costs can erode the financial benefits of selling the family home to fund a village move, so it’s crucial to review the contract and seek independent legal or financial advice before committing.

Tax implications of selling the family home

Selling the family home to fund aged care or a retirement village can trigger tax considerations, particularly regarding capital gains tax (CGT).

In Australia, the primary residence is generally exempt from CGT, provided it has been your main home throughout ownership. If you’ve lived in the home continuously, selling it to pay for aged care typically incurs no CGT liability.

If, however, the property was rented out for a period or used for income-producing purposes (e.g., running a business), a portion of the sale may be subject to CGT, calculated based on the time it was not your primary residence.

Sydney-based Senior Tax Manager for Australasian Taxation Services, Annie Zhu, said rental income from retaining the home can also have tax implications.

“While rental income is taxable, expenses like property maintenance, council rates, and interest on related loans may be deductible, however, rental income increases your assessable income for Centrelink purposes, potentially raising your means-tested care fee and reducing your pension.

“Consulting a tax professional is essential to navigate these complexities and optimise your financial position.”

Making the decision

Deciding whether to sell the family home to fund aged care or a retirement village hinges on balancing financial realities with emotional ties.

The costs of care, potential loss of pension entitlements, resale costs in retirement villages, and tax implications all demand careful planning.

Engaging a financial adviser or aged care specialist can help clarify your options, ensuring the decision aligns with your long-term financial security and personal values.

For many, the home represents more than money—it’s a legacy. Weighing its sale requires interrogation with both head and heart.