Help needed re investing in property to cover nursing home fees

liamb_2

My mother in law is in a nursing home, and we have an offer on her house. We need to raise a certain amount per month to cover the nursing home fees, as obviously she doesn't want all the income from the house sale to be eaten up over the next five years by her costs at the nursing home. I am aware that there are a number of associated costs related to buying a property to let, but am confident that we can still be assured of enough income to bridge the gap between the fees and what her pension brings in. My main question is really whether it is actually better for the 'new' property to remain in her name, or for it to be in my wife's name, who will soon have power of attorney but has a part time job and a husband in full time employment. (that's me!) I am not sure whether anyone can answer this without knowing the specifics of her pension, but any advice would be greatly appreciated - I imagine that this is a relatively common situation in which to be, but as I have no personal experience of it and our local financial adviser hasn't bothered to get back to us, I am trying my luck on here!

pip895

I am not an expert but an obvious question that occurred to me was - is your wife the sole beneficiary of your MIL's will? If the new property is to be in your wife's name then it will essentially be a gift to your wife and there might be tax consequences.

xylophone

LPA? Has it been registered? https://www.gov.uk/power-of-attorney

or EPA? http://www.justice.gov.uk/downloads/forms/opg/epa101.pdf

Take legal advice as to what you can and cannot do as Attorney?

http://www.adviceguide.org.uk/england/relationships_e/relationships_looking_after_people_e/managing_affairs_for_someone_else.htm Worth a look?

The money from the sale belongs beneficially to your MIL - any account in which it is held must be either in her name or in your wife's as Attorney for Mrs X.

It would follow that any property bought would have to be in MIL's name with your wife registered as PA?

You are aware of all the rules and regulations relating to being a landlord?

joerugby

Are you sure you want to go into the property business?

Have you considered any other options?

dunstonh

We need to raise a certain amount per month to cover the nursing home fees, as obviously she doesn't want all the income from the house sale to be eaten up over the next five years by her costs at the nursing home.

So, is investing into an illiquid asset a sensible thing to do?

Is your MIL really interested in becoming a landlord if she is now going into a nursing home?

When (not if) the housing costs go up, how are you going to fund that shortfall?
What rental yield are you working on? (net of tax)
Is there any local authority funding involved (means tested benefits)

My main question is really whether it is actually better for the 'new' property to remain in her name, or for it to be in my wife's name, who will soon have power of attorney but has a part time job and a husband in full time employment. (that's me!)

By putting it into your names, you not only keep it potentially subject to inheritance tax but also introduce capital gains tax.

I imagine that this is a relatively common situation in which to be, but as I have no personal experience of it and our local financial adviser hasn't bothered to get back to us, I am trying my luck on here!

Funding for nursing home fees is common. Becoming a landlord to fund for nursing home fees is extremely uncommon.

lisyloo

A couple of points - probably alreay covered by others, but I'll add my voice.

1) Your MIL canot just give (gift) away her money. The LA would take an avid interest because it's illegal for her to "deprive" herself of assets to avoid care home fees. I'm sure you were intending no such thing but you need to be aware of how that would look to the LA.

2) Being a landlord is a part time job. There's the tax, accounts and finances, the DIY and dealing with the tenants - who might want a leak fixed at 4 a.m. Plenty of amateurs do this so I'm not trying to scaremonger, but you and she need to be aware of the work and responsibilities involved. For example if there's an emergency e.g. leak, whilst your both working then who will attend to it?

3) There are responsibilities of being a landlord, the one that always springs to mind is boilers because carbon monoxide is a matter of life and death. Again there are thousands of amateur landlords across the country but make sure you are aware of your responsibilities.

Final thought - are there no other way to get an income rather more easily? e.g. a stocks & shares porfolio.
I have a feeling that if all amateur landlord accounted for their free hours then property would be less lucrative and the only reason it stacks up (bit like a family business) is all the free hours you will be putting it.
All I'm saying is make sure you know what you are letting yourself in for.
It's a job not a hobby. If tennants have a leak or broken heating then quite rightly they expect it fixed as a priority.

jimjames

joerugby wrote: »

Are you sure you want to go into the property business?

Have you considered any other options?

It doesn't seem like a sensible option to me. Why sell one house to raise money for fees only to then buy another?

Surely having so much money tied up in one asset doesn't make sense. If you want to do better than cash could you keep some in equities (funds) that give a higher income than cash. The remainder to pay fees in the interim could stay as cash.

At least in funds you can sell units if you need the cash. You can't easily sell part of a house if you need a few thousand.

le_loup

Does your mother still have mental capacity?
This will affect what you can and can't do with her money.
Have you thought of an Immediate Care annuity?

liamb_2

Really appreciate all of you who have taken the time to respond to this, a very educational experience for us both and we will now be investigating various other options as well.

jamesd

For normal investments you might expect to be able to take 4-6% of the capital value as income, with no or only gradual capital value decline. Depending on her age it'd be possible to take substantially more than that with an objective of having the funds last only as long as she is likely to live.

If a property is to be let, an initial good candidate is the one that has previously been the principal private residence of the person letting, since that also allows the use of letting allowance against any eventual capital gains tax. This allowance is not available unless the person letting has previously lived in the property as their PPR.

One way to let the PPR and raise capital as well is to use a BTL mortgage. Interest on a mortgage up to the value of the property at the time it entered the letting business is deductable from rental income for income tax.

troubleinparadise

The house belongs to your m-i-l, and as such any sale proceeds will belong to her. Any investment of those proceeds whether in a new property, bonds, savings etc will also belong to her.

You say your wife will shortly be granted power of attorney over her mother's affairs. Your wife will then be acting "in her mother's best interests" in any transactions undertaken on her behalf with her capital assets.

Your wife cannot use that POA to transfer any of MIL's assets into her own name. If the POA is used to purchase a property using the sale proceeds, the property should be in MIL's name.

If MIL decides to make a gift - and this is assuming that your MIL still has capacity - then she can do so, but it would be wise to have a formal letter giving details of the gift signed by her showing that she is aware of the gift and that this gift is of her choosing.

Obviously you don't detail the amount of MIL's assets, but as things stand at present she will be regarded as self-funding in terms of her care home costs (NHS nursing care funding notwithstanding), and this will remain the case until her assets fall below the threshold of £23,250. If your MIL makes a gift to your wife and she is later assessed for funding there will be questions raised as to why she has given away assets she would need to fund her care.

You say:

I am not sure whether anyone can answer this without knowing the specifics of her pension

.

I am assuming you are referring to MIL's pension here? As POA, your wife will need to attend to MIL's tax affairs, and any costs or rental proceeds as a result of using a property to raise funds for care home fees will become part of that. Seek financial advice on this before proceeding as to whether investing MIL's money in a new property or other type of investment will be best for her income needs, and how it might affect her pension or other benefits she receives.