Should I sell my shares to reduce the size of my home loan?

I am in a dilemma. I plan to buy an apartment for $500,000, borrowing $400,000 as a mortgage over 30 years. I have a share portfolio valued at $420,000. Should I sell some shares and lower the amount I borrow to pay it off quickly, or drag the mortgage over 30 years?

You appear to have 20 per cent of the purchase price as a deposit, so you should escape the requirement for expensive mortgage insurance.

The sooner you pay off your mortgage, the better.Credit:iStock

However, you don’t mention your age, annual income or whether the apartment will be your home. If the latter, then the loan interest will not be deductible and the smaller the loan the better.

Also, if your income is high, your portfolio will be taxed highly, albeit reduced by franking credits. But then any capital gains tax realised if you sell any shares would also fall into a high tax bracket.

We shall assume the after-tax return from your portfolio is lower than the cost of your mortgage.

Now, in a portfolio of this size, there are bound to be stocks showing both gains and losses. Sit down with a calculator and determine those stocks which, if sold, would produce the highest value with the lowest capital gains. Then determine which stocks would produce the highest value with the largest capital losses. Match them up so that the net gain is zero and, in this way, raise the largest possible amount of equity for no tax outlay. Then add this to your equity.

Ultimately, the sooner you pay off a mortgage, the less it will cost you.

We have lived in Australia since 2010, my wife has just retired and I plan to retire in 2024. We will both be 65 this year. During this time, we have accrued $150,000 and $240,000 respectively in Australian super funds. Our total UK income, from UK pensions and rent, will be in the region of £55,000 ($97,000) a year. We own an apartment in Sydney, plus a home in the UK. As we plan to spend the bulk of the year in the UK we will be classed as residents there for tax purposes and will pay income tax there on our UK income. However, would the UK tax authorities include any withdrawals from our Australian super funds while we were living in Australia in our UK tax liabilities? If yes, would it be more tax efficient for us to withdraw all our funds from super and place them in a savings account in Australia and therefore avoid UK tax?

I’m not a tax accountant, nor am I very knowledgeable about UK tax. However, it is public knowledge that UK residents are taxed on worldwide income. Moreover, from my reading of Article 17 of the UK/Australia Double-Taxation Convention, an Australian pension paid directly to a UK resident is taxed in the UK, while untaxed if paid to an Australian resident.

Most Australian pension funds will only deposit pension payments in a local bank account. You could of course commute your pension to the accumulation phase and not draw an Australian pension while in the UK.

If you cashed in your super, then the interest earned in bank accounts would be taxed in the UK. Talk to an accountant trained in UK and Australian tax law. You know that living in Australia is to win life’s lottery, right?

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Investors should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. All letters answered.

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