Care home costs if been living rent free?

DreamweaverB

A 65 year old relative had got into debt to the extent that his secured and unsecured debts roughly equal the value of his house, and he can no longer afford the repayments.

Rather than let him carry on with all the stress of these debts over the next 10 years I am contemplating buying the house and letting him live there rent-free for as long as he wants.

He currently gets no benefits (living off his pensions) but if he were to need to go into a care home in say 15 or 20 years time are there any issues if he's been living rent-free for the previous twenty years? Or any other issues to be taken into account with this arrangement?

Bollotom

DreamweaverB wrote: »

A 65 year old relative had got into debt to the extent that his secured and unsecured debts roughly equal the value of his house, and he can no longer afford the repayments.

Rather than let him carry on with all the stress of these debts over the next 10 years I am contemplating buying the house and letting him live there rent-free for as long as he wants.

He currently gets no benefits (living off his pensions) but if he were to need to go into a care home in say 15 or 20 years time are there any issues if he's been living rent-free for the previous twenty years? Or any other issues to be taken into account with this arrangement?

So if you buy his house, does this mean you are doing it to pay off his debts? Sounds good and I think the 15 to 20 years before moving into a care home, while you can't be sure it won't be next year, won't cause a problem as far as selling assets to avoid care costs.
Obviously you'd need good and sound advice.:cool:

DreamweaverB

Yes, what I pay for the house will just about clear both the mortgage and all his other debts.

I'll be paying market value (fortunately a neighbour sold for the same amount a few months ago) so I can't see any issues with "deprivation of assets" even if he went into a home tomorrow but wasn't sure if there were other issues because he still has the 'benefit' of the property?

dmg24

Bollotom wrote: »

So if you buy his house, does this mean you are doing it to pay off his debts? Sounds good and I think the 15 to 20 years before moving into a care home, while you can't be sure it won't be next year, won't cause a problem as far as selling assets to avoid care costs.
Obviously you'd need good and sound advice.:cool:

I think this is key - whilst we all hope that our loved ones will not need residential care, no one can guarantee that will be the case. I would think very carefully before going down this route, it could leave your relative in a real mess.

DreamweaverB

dmg24 wrote: »

I would think very carefully before going down this route, it could leave your relative in a real mess.

Not sure if our posts crossed but what do you think the issue might be if he did go into a home tomorrow or next year? (He's perfectly fit and healthy by the way so this is extremely unlikely although of course I understand that it could happen.)

As per my post that may have crossed, he already has no assets. The house is worth £75k and he has a £40k mortgage and £35k of unsecured debts so I'm pretty confident "deprivation of assets" isn't an issue unless someone tells me different.

Mojisola

This isn't exactly the same situation but the posters raise the issue of HM Revenue & Customs taking an interest - https://www.housepricecrash.co.uk/forum/index.php?showtopic=108469

Would be worth checking it out with an accountant.

Are you sure that the problems that led to the debts are resolved or will he just start building up more debts once you've cleared these for him?

DreamweaverB

Thanks, some interesting points in that HPC thread.

Mojisola wrote: »

Are you sure that the problems that led to the debts are resolved or will he just start building up more debts once you've cleared these for him?

After years of burying his head in the sands he has finally been to CAB, looked into DMP etc. so I can only hope he won't get into debt again. The debts were normal out of control easy credit for a new car, home improvements, living beyond his means, consolidating loans etc. There's nothing sinister like gambling and the like, he has already changed his lifestyle and I presume credit wouldn't be so easy to come by anyway once no longer a home owner.

Obviously I can't guarantee he won't get more debts but he's an adult and it will be made plainly clear that on his head be it if he does.

Mojisola

He's lucky to have you as a relative. It's good to hear of family helping each other.

As long as it's not going to cause you any problems with tax, etc, I can't see any reason why you shouldn't go ahead with it. I can't see that there would be any problems with deprivation of assets for him.

As your relative could be with you for a couple of decades or more, you may need to think around future (unlikely but possible) problems - what happens to him if you die/what happens if you have to claim means-tested benefits - owning another property will prevent you from claiming/what happens if you have a relationship breakdown and the other house becomes part of a divorce settlement?

DreamweaverB

Thanks, good point about what happens if I get knocked over by a bus tomorrow, I'll make sure to plan for that situation so that he's protected.

I'm fortunate enough to have been able to pay off my own mortgage recently and I already own outright a second small property so I wouldn't be eligible for means-tested benefits anyway. I'm also single but if that changed in the future I'd take steps beforehand to protect the relative's home.

Thanks for all the pointers, it sounds like it's all quite feasible.

Jowo_2

What happens in 10 years time after the rent free period has ended?! Where does this chap go?

Take expert advice on this strategy, for both tax (including capital gains) and deprivation of capital reasons. Deprivation of capital isn't just about under pricing an item or giving it away for free, it's about whether it has been done to improve a persons position to receive means tested benefits or social care services. Payment of some debts can be classed as Deprivation of Capital.

You'd also need to understand your obligations as a landlord, such as complying with safety regulations (gas certificate), repairs and so on.

Get advice from an elder charity about deprivation of capital before any decisions are made.

http://www.counselandcare.org.uk/advice-and-information
http://www.ageuk.org.uk/Documents/EN-GB/FS40_deprivation_of_assets_in_the_means_test_for_care_home_provision_fcs.pdf?dtrk=true

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingDebt/index.htm

I came across the following guide aimed at DWP staff assessing DofC and while I don't think it's actually aimed at those applying for social care services (instead it seems pitched at things like housing benefit, income support and pension credits), I wonder if its useful to understand some of the complexity of the situation about deprivation of capital and notional capital.
www.dwp.gov.uk/docs/hbgm-bp1-assessment-of-capital.pdf

"P1.703 A claimant should still be regarded as having deprived themself of a capital resource if they have disposed themself of it by way of a gift to a third party. However, they should not be regarded as depriving themself of it if they did it to

HB(SPC) Reg 47; CTB(SPC) Reg 37

• reduce or pay off a debt they owe
• purchase goods or services the Decision Maker considers reasonable, given their
circumstances, eg
– payments to reduce/pay off a debt, eg paying a credit card account or mortgage early
– for day to day expenses
– to improve their quality of life, eg buying a new kitchen or car
– for medical treatment
– for home repairs

– for a holiday

P1.714 The following are further examples of when a person

may have deprived themselves of capital
• a lump sum payment has been made to someone else, for example as a gift, or to repay a
debt, but see Reason for disposing of capital asset later in this chapter
• substantial expenditure has been incurred on a non-essential item, for example on an
expensive holiday
• title deeds of a property, which is not the claimant’s home or will soon cease to be so because,for example, they will be moving elsewhere, have been transferred to someone else
• money has been put into a trust which cannot be revoked
• money has been converted into another form which would fall to be disregarded, for
example personal possessions
• capital has been reduced by extravagant living, for example gambling, or used to provide

a much higher standard of living than the claimant usually maintained

P1.732 When capital has been used to repay a debt give careful consideration as to whether the debt needed to be repaid at that time. If there was no legal obligation to do so then it may be that part of the claimant’s purpose was to obtain or increase the amount of benefit.

P1.745 Extravagance or imprudence do not of themselves establish that the deprivation was for the purpose of securing or increasing the amount of benefit. It is evidence pointing in that direction,but all the circumstances of the case must be considered.
P1.746 The timing of the deprivation in relation to the benefit claim may give an indication of whether or not securing benefit was a significant purpose behind the deprivation.
P1.747 Similarly claimants’ explanations of how they intended to pay their rent and council tax following the deprivation may help in making a finding of fact."

Mojisola

Don't you think that as the person is only 65 years old and not claiming any benefits now or intending to in the foreseeable future, it would be very difficult for this move to be see as intentional deprivation?