Renovating Care Home Residents House 21 January 2020 at 8:39PM in Marriage, relationships & families 14 replies 1.1K views

Mike_R

Hi my mother-in-law moved in to a residential care home over the summer. Her former home is not in a great state of repair. We are in the process of setting up a Deferred Payment Arrangement with the local authority to fund her on-going care. My in-laws owned the property as tenants in common, with equal shares. My father-in-law is no longer with us and his 50% passed to a trust with my mother-in-law and his daughter (my wife) as the trustees. We have LPA and believe that it would be in our mother-in-law's best interests to renovate the property for rental. This would provide additional income for her and would reduce the debt under the DPA. Just getting started with all of this and wondered if anyone had any comments on the following.
1 - Is this broadly sensible?
2 - What implications would it have for income tax for my mother-in-law and eventually Capital Gains Tax and Inheritance Tax?
3 - What would be the best way of financing this renovation? I am assuming that it's unlikely that my mother-in-law could raise the financing. We possibly could but I am concerned as to how we would protect our investment.
Any advice appreciated.
Mike.

74jax

If your wife owns 50% couldn't she pay for the renovations and use to offset tax?

If her mother doesn't have the funds then she can't pay.

Could you not just sell and it's one less thing to worry about?

Keep_pedalling

If her income and rent (after tax) does not meet her full fees then this is not really an option. Even if it does, do you have any experience of being a landlord?

onwards&upwards

If you turned it into a rental what would happen if you had non paying tenants, or long voids, or expensive repairs? None of these things are rare.

unholyangel

I don't believe you've mentioned a pertinent fact. Whether your MIL is likely to return to the property or whether she is likely to see out her days in care.

If the latter, imo its not in her interest to rent out (you'd also need the LA's agreement) unless the profit from the rent and any equity increase is guaranteed to be more than the DPA + interest if charged. There's also the possibility the house prices could crash (it happens). Or that she'd get a non paying tenant and still have the costs but with no income to cover it. Sure you can take them to court to get them out but that takes time, costs money and normally doesn't result in receiving any of the missed rent.

Savvy_Sue

As Attorneys, you are required to make decisions in your MIL's best interests. Blunt question, in what way does renting the house benefit your MIL, especially as you have to spend money up front to make it rentable?

You can't do this just because your wife would like to retain the family home - and anyway, it ceased to be the family home (being blunt again ...) when the last family member moved out.

And if you do move towards selling, it's not even necessarily in your MIL's best interests to 'do it up' before sale. You may or may not recoup your expenditure on repairs, and if you do not, it's arguably not in her best interests.

All this assumes MIL will not be returning home, which seems like a reasonable assumption if you think renting her home out would be worthwhile.

Mike_R

To answer questions.
74jax: We could just sell and it would be much easier, but this is an extremely emotional area. The property has been the family home for over 50 years.
Keep pedalling: We have no experience of being landlords, so yes it's a potentially risky move.
Unholyangel: Yes, MiL will be living out her days in the care home. A traumatic and difficult 6 months working with all sorts of agencies failed to allow MiL to stay at home which would have been her wish.
Savvy_sue: The opinion of several local estate agents is that the cost of some renovation work would be less than the likely increase in sale value. The property is in an area where demand has grown and is continuing to grow. This seems to be in MiL best interests.

M_Python

It seems to me that your plan is more in your wife's best interests rather than your MiL.

Savvy_Sue

Mike_R wrote: »

To answer questions.
74jax: We could just sell and it would be much easier, but this is an extremely emotional area. The property has been the family home for over 50 years.

Yes, I can see that it's emotional, but you do have to be pragmatic. And emotionally it may be very hard to see another family living there, potentially damaging it, while you still own it.

Mike_R wrote: »

Keep pedalling: We have no experience of being landlords, so yes it's a potentially risky move.

Please read up on your legal obligations. There is a sticky thread on the House buying renting and selling board which looks like it would be essential reading - and there's LOTS of it.

Mike_R wrote: »

Savvy_sue: The opinion of several local estate agents is that the cost of some renovation work would be less than the likely increase in sale value. The property is in an area where demand has grown and is continuing to grow.

They would say that, wouldn't they?

I'm not saying they're wrong. But I would say again, it is no longer the FAMILY home, however emotionally attached to it people may feel.

Mojisola

Mike_R wrote: »

Hi my mother-in-law moved in to a residential care home over the summer.

We are in the process of setting up a Deferred Payment Arrangement with the local authority to fund her on-going care.

My in-laws owned the property as tenants in common, with equal shares. My father-in-law is no longer with us and his 50% passed to a trust with my mother-in-law and his daughter (my wife) as the trustees.

If you don't want to sell the property, how will you pay the deferred bill when the inevitable happens and your MIL dies?

Have you thought about having the property value assessed by a RICS surveyor and buying out your MIL?

Keep_pedalling

The only really good reason to maintain the family home Is because you want to live in it. Have you considered buying out MILs share?