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Renting a property to pay towards care costs.

Discussion in 'ARCHIVE FORUM: Support discussions' started by jaws, Nov 29, 2007.

  1. jaws

    jaws Registered User

    May 8, 2007
    27
    Hi everyone,
    My dad is now in an emi care home and getting settled. He has good and bad days - wants to go home at times but we don't believe he would be safe. He went in for respite with a view to long term care and it appears he will be staying. We have met with the financial assessor from social services who said we could rent out his house to pay towards his care costs. This would mean building up a debt that would be repaid on the sale of the house. The assessor urged us to strongly consider this as opposed to seeling the house now - she was very supportive. I heard that this income to pay for his care would be tax free. Is this right? Does anyone have any info on this?
    Many thanks for this and all the support I was given in making the difficult decision for him to go into care.
    XXX
     
  2. jenniferpa

    jenniferpa Volunteer Moderator

    Jun 27, 2006
    39,419
    Hi Jaws

    I know there are a couple of members who do this, so hopefully they'll see your post and tell you about their experience. I have to say, I've never heard that the income from such a property would be tax free in this situation - the only tax free disbursements I am aware of is when you buy an annuity and the disbursements from that go direct to the nursing home. Which doen't mean that it can't happen - only that I've not heard of it :)
     
  3. CraigC

    CraigC Registered User

    Mar 21, 2003
    6,630
    London
    #3 CraigC, Nov 29, 2007
    Last edited: Nov 29, 2007
    Hi Jaws,

    you really need to check the legal implications and get some legal advice in my opinion. This is really important when it comes to tax incentives. The tax position will depend on any other income (e.g. pensions and savings).

    We looked into this, but mum and dads home was so far away from us that we decided that the hassle of renting was going to make life very difficult. When we did the maths we also realised that the rental income would only pay about a quarter of the fees.

    Guess it depends on the size of the property and rental income as to whether it is worthwhile.

    BTW - do you have an EPA set up? Just may make things easier in the future.

    Perhaps the financial assessor can explain more about the tax implications regarding other income.

    One other thing. I think you should get the first 4 to 12 weeks of care paid if there are limited savings. I'm no legal begal, but this is something we were unaware of when and mum and dad went into care. The asset of the house is just not taken into account for this period.

    http://www.direct.gov.uk/en/HealthAndWellBeing/HealthServices/CareHomes/DG_10031411

    Hopefully others will pipe up with specific experiences.

    Good luck
    Craig
     
  4. sue38

    sue38 Registered User

    Mar 6, 2007
    10,856
    Wigan, Lancs
    Hi Jaws,

    I have not heard of this either, but wonder whether it might come under the 'Rent a Room' scheme. This is where you rent out a room in your only or main residence, you can receive rent tax free (up to £4,250 in tax year 2006/7, not sure what the limit is for current tax year, can't put hand on this year's tax book!).

    This is under section 309 Income Tax (Investment and Other Income) Act 2005.

    There are some accountants I believe on TP, but I would suggest you need professional advice on this.

    Would be interested to hear the outcome.
     
  5. jenniferpa

    jenniferpa Volunteer Moderator

    Jun 27, 2006
    39,419
    Craig is correct - for the first 12 weeks the asset of the home should not be taken into account. This is not a deferred payment scheme (i.e. you don't have to pay any money back) but simply removes the house from the equation for that limited period. Should there be limited liquid savings, in effect this means the LA will fund you for that first 12 weeks (the residents contribution is calculated in the same way as it would be if the house didn't exist). I don't think this is publicized as much as it should be, so be aware.
     
  6. jaws

    jaws Registered User

    May 8, 2007
    27
    Hi again,
    Thanks for your replies. I have spoken with the social services financial assessor who has given me some good advice too. It's a bit of a b****r having to sort all this stuff out as well as making sure dad is looked after - but I'm sure I don't need to tell you as you all have your own experiences! We believe renting the house is the best way forward but if it doesn't work we will sell and hopefully have lost nothing by trying. One thing I have noticed when reading other threads ( all of which I find very supportive) is the vast difference in care costs. The home where dad is is just under £400 per week with no extras for hair, papers etc. They have a residents fund that pays for all that and are constantly fundraising. They have a theatre group in this afternoon for a panto and are going out for a christmas dinner on tuesday to a local pub - no cost to dad. Many times when I visit (at different times so they're not expecting me) he is sitting in the office with a nurse having a cup of tea, or in the lounge doing activities. He seems to be very well cared for, but I worry that we have picked a 'cheap' one. It wasn't the price that attracted us though. I wonder if we will ever feel comfortable that we have made the right decision.
    XXX
     
  7. Grannie G

    Grannie G Volunteer Moderator

    Apr 3, 2006
    68,721
    Kent
    Dear Jaws.

    Hold tightly to that home with both hands and don`t let go. No matter what the cost, you seem to have found excellent care for your father. I don`t imagine it could be bettered.

    Love xx
     
  8. alfjess

    alfjess Registered User

    Jul 10, 2006
    1,213
    south lanarkshire
    Dear Jaws

    Your Dad's home sounds ideal and I am glad he is happy

    Alfjess
     
  9. strawberrywhip

    strawberrywhip Registered User

    Jun 26, 2006
    76
    kent
    Jaws.. we are in exactly the same position..and same price!
    We choose the home because the staff are caring..not the smartest home..a little scuffed around the edges..but no agency staff...all friendly, MIL is encouraged to help to do household tasks which she loves to do..part of her normal daily routine.
    We have rented her house out, and her widows pension and her pension all help to pay because she is self funding.
    We had a scare the other day because she had a fall.. and suddenly everything can change overnight..should she need a nursing home at a higher rate; but I guess we would be given time to organise her finances..give the tenants notice etc. It has worked well so far..so good luck to you and give it a try.
     
  10. CraigC

    CraigC Registered User

    Mar 21, 2003
    6,630
    London
    #10 CraigC, Dec 3, 2007
    Last edited: Dec 3, 2007
    Wise words. I'd keep quite about the location as we will all be after a place ;-)

    Seriously, it is more about good staff and good management than the price you pay. Along with making sure you dad is happy.

    I think prices vary greatly on region. Our homes are based in South London, probably one of the highest prices in the UK I'd guess.

    Take Care
    Craig
     
  11. Margaret W

    Margaret W Registered User

    Apr 28, 2007
    3,725
    North Derbyshire
    If your relly is relaxing in the office with a cuppa, it can't be bad!

    Re renting out the house to pay for care home fees. My understanding only. Please take specialist advice. The value of the home will be disregarded as far as the local authority is concerned. The first 12 weeks of care (at the LA limit) will not be clawed back, but after that the fees will be clawed back when the house is sold - effectively a loan, but interest free. The LA will only pay up to a fixed amount (in our area £352 a week which won't pay for most homes, my mum's is £460, so an extra £108 a week has to be paid). The extra cannot come from the resident. I do not understand the reason for this rule, but there it is. Seems unreasonable if the home is being rented out.

    Then there is the issue of tax on the rental income. This has nothing to do with the LA support. Tax is payable on the net income (rental less expenses), unless it comes under the Rent a Room scheme, which I can't see that it will if the owner is not living there. So all profits will be taxable, less the recipient's personal allowance which varies depending on age.

    We had this option with my mum's house. We could have rented it out. Probably £400 a month. Deduct two months a year with no tenant, and one month when the tenant doesn't pay. £3,600 a year gross income. Check out Insurance costs, and mortgage interest. There needs to be an annual check on electric and gas equipment in the property, perhaps costing £200. Tenants expect repairs to be carried out promptly, so expect to pay call-out charges for plumbers, electricians, builders. All furniture must comply with fire regulations so expect to have to replace some. Then there is the hassle of drawing up contracts, expect to use a letting agent, charging 10% + VAT of the annual rental, about £600 for the year, plus about £500 for each contract. At the end of the year you might have profit of about £2,000, taxable. Instead, sell the house for £150,000, invest at 5% p.a. £7,500 income and you are quids in with no hassle. Don't you have enough hassle dealing with your sick relative?

    Yes, the property might increase in value - but it may be subject to capital gains tax, which reduces the benefit.

    There was no contest as far as I was concerned. The house sold for £130,000, I have used £55,000 to purchase a Care Home fees plan which kicks in in 3 years, guaranteeing to pay the shortall between mum's pension and the care home fees for the rest of her life, and the other £75,000 has been invested to pay the next 3 years fees and leave a good sum over in case of future difficulties.

    As I said, my own view, take advice. Help the Aged have been great for me.

    Regards

    Margaret
     

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