Deferred Payment Agreement versus House Sale

philiphodges

Is it better to go for a Deferred Payment Agreement with the local authority or to sell the house?
My father is now permanently in a care home and we have to source the funding.  He has £25,000 in savings and a house worth £700,000 (no mortgage).

Are we better to sell the house and pay directly for the care home (investing the money somewhere safe) or is it better to enter into an agreement with the local authority (where they have a charge over the property).

Thanks in advance

km1500

I suppose it depends on the interest rate the LA will charge ?

Marcon

philiphodges said:

Is it better to go for a Deferred Payment Agreement with the local authority or to sell the house?
My father is now permanently in a care home and we have to source the funding.  He has £25,000 in savings and a house worth £700,000 (no mortgage).

Are we better to sell the house and pay directly for the care home (investing the money somewhere safe) or is it better to enter into an agreement with the local authority (where they have a charge over the property).

Thanks in advance

What would the care home fees be if the council is paying, or if you pay direct? Usually those who are self-funding subsidise those where the council is paying, and the difference could be substantial.

If you keep the house, what sort of figure could you get if you rented it out - and would you want to be an 'accidental landlord'?

Keep_pedalling

For simplicity is would be far better to sell than having to manage a rented property or even an unoccupied one.

With cash to pay your own care the LA do not need to be involved and the choice of care homes will be far greater. 

Marcon

Keep_pedalling said:

For simplicity is would be far better to sell than having to manage a rented property or even an unoccupied one.

Completely agree ....

Keep_pedalling said:

With cash to pay your own care the LA do not need to be involved and the choice of care homes will be far greater. 

...but the fees are likely to be much higher. With a deferred payment scheme the choice of homes should be much the same as when self funding, but if the LA is 'paying', the fees charged to them are usually lower, because self-funders subsidise state-funded residents.

philiphodges

Many thanks for all the input.  Yes, we have concluded sell the property and have done with it.

if we can generate a yield of 7% on the proceeds from the property that would cover the care costs (so preserving the capital).

best ideas on achieving that?  The capital can be locked up.

SVaz

With that sort of money, meeting with an IFA would be a wise choice.   

The amount of dividends/income required is high and would be taxed,  some at 40% if he also has pension income.
There are immediate care needs annuities to consider,  that would avoid taxation but are a gamble on longevity. 

Keep_pedalling

philiphodges said:

Many thanks for all the input.  Yes, we have concluded sell the property and have done with it.

if we can generate a yield of 7% on the proceeds from the property that would cover the care costs (so preserving the capital).

best ideas on achieving that?  The capital can be locked up.

Not possible especially as most of the income will be subject to income tax. 

Linton

philiphodges said:

Many thanks for all the input.  Yes, we have concluded sell the property and have done with it.

if we can generate a yield of 7% on the proceeds from the property that would cover the care costs (so preserving the capital).

best ideas on achieving that?  The capital can be locked up.

A yield of 7% even before tax would be very ambitious. ie risky.  So you would probably need to use up part of the £700K Capital as well.  Taking risks if you are using PoA authority would generally be considered inappropriate.

In your calculations have you taken account of State Pension, other pensions, and benefits which may be use to pay care home costs?