Best way to pay for care home fees

slambos

Hi

I’m an only child and my elderly mother will soon be needing care at home and quite probably then go into a care home. She has a decent pension and some savings, so I know she’ll need to contribute towards most of the at home care fees and if she goes into a home she’ll be responsible for all fees, as she owns her own property.

Her pension will cover some of the care home fees but I’ll need to obviously pay the deficit. Like everyone wants to, I would like to keep the property, so I first thought I could transfer the property into my name then rent it out when she is in a home. I know it will look like deprivation of assets but I am not trying to get out of the payments, just trying to retain her home.

However, I think there would be capital gains tax to pay if I were then to sell on the house in future, which would be costly.

So, I’m thinking I could keep it in in her name and just rent it out anyway. I’m not sure if this is the best way though – I would appreciate any comments/ideas from others that may have bene through something similar/know this area of finances.

With regards to Inheritance tax, I believe the threshold in this situation (giving property to child) would be £500k and the property is worth around £400k, so that shouldn’t be an issue.

Thanks in advance  

LightFlare

slambos said:

Hi

I’m an only child and my elderly mother will soon be needing care at home and quite probably then go into a care home. She has a decent pension and some savings, so I know she’ll need to contribute towards most of the at home care fees and if she goes into a home she’ll be responsible for all fees, as she owns her own property.

Her pension will cover some of the care home fees but I’ll need to obviously pay the deficit. Like everyone wants to, I would like to keep the property, so I first thought I could transfer the property into my name then rent it out when she is in a home. I know it will look like deprivation of assets but I am not trying to get out of the payments, just trying to retain her home.

However, I think there would be capital gains tax to pay if I were then to sell on the house in future, which would be costly.

So, I’m thinking I could keep it in in her name and just rent it out anyway. I’m not sure if this is the best way though – I would appreciate any comments/ideas from others that may have bene through something similar/know this area of finances.

With regards to Inheritance tax, I believe the threshold in this situation (giving property to child) would be £500k and the property is worth around £400k, so that shouldn’t be an issue.

Thanks in advance  

 Probably because it is

Grumpy_chap

slambos said:

Her pension will cover some of the care home fees but I’ll need to obviously pay the deficit.

Why will you need to pay the deficit?
Your Mother's savings or other assets should pay any deficit that is not met from her income.

FlorayG

Better surely to rent it out in your mother's name, the money goes into her account and pay care home fees from there? remembering of course she has to pay tax on it.
Do you have POA? If not then your mother needs to be sufficiently compos mentis to arrange this herself ( of course you can actually DO the renting on her behalf, but she needs to be able to approve what you do)
@Grumpy_chap is correct, you have no responsibility to pay anything. Of course, you can contribute if you want to and in that way prevent the house having to be sold

slambos

thanks for the comments. Sorry, let me rephrase that..' the deficit will need to be paid and the only asset she has is her home'. That's why I'm hoping to generate that deficit through taxable rent. Yes, thankfully, I already have POA.

pseudodox

A friend was in same situation.  Mum's house was retained & rented out in her own name & rent plus other assets covered the care fees of a quality care home. Luckily they got a very nice young family tenant who, when Mum died, bought the house.  My friend as executor allowed a discount on market value to reflect the no chain conveyancing costs & no estate agent fees.

Grumpy_chap

slambos said:

thanks for the comments. Sorry, let me rephrase that..' the deficit will need to be paid and the only asset she has is her home'. That's why I'm hoping to generate that deficit through taxable rent. Yes, thankfully, I already have POA.

OK, thanks for clarifying.

When acting with the PoA, decisions in that capacity must be made in the best interests of your Mother.

slambos said:

Like everyone wants to, I would like to keep the property, so I first thought I could transfer the property into my name then rent it out when she is in a home. I know it will look like deprivation of assets but I am not trying to get out of the payments, just trying to retain her home.

It is difficult to see how your Mother's best interests are served by her gifting you the property and then relying on your gifting her back the deficit in the care home fees each month.
This gift would be DoA. 
I also suspect that the gift would not remove the property from her Estate for IHT purposes (as it would be GwR - Gift with Reservation) though that is likely moot based upon the size of the Estate.

I do not believe that "everyone" would necessarily wish to keep the Mother's property.  I believe there are a good proportion of people who would have the first priority that the Mother has the very best quality of living that she can from the realisation of any assets she has and the reward for her hard work and prudence in earlier life.

Why do you want to keep the property?
Is it your desire to one day life at the property?

You could buy the property from your Mother at open market value.  Once purchased, you could live in the property or rent it out.  Rental income will be subject to income tax.  Gains on the property value while not your PPR would be subject to CGT.

slambos said:

So, I’m thinking I could keep it in in her name and just rent it out anyway. 

Yes, this would be possible.

The income generated would be subject to income tax at your Mother's appropriate marginal rate.

Your Mother will be liable for CGT should the property subsequently be sold while she is still alive.  (Double check there is no exemption for her being in a care home but I could not find one.  I think there is an exemption for up to three years, but I am not sure if this applies and the property has been rented out.  These tax questions may be worth asking on the "cutting tax" area of the forum - if you do so, include a link to this thread to avoid duplication of discussion.)  There will be no CGT is she still owns the property when she passes.

Your Mother (or you as her PoA) will be liable for all the responsibilities and liabilities of being a LL. 
Is the property in a good state to rent "as is" or will it require modernising to bring up to good rental standard?

Will the sum of your Mother's pension income plus the rental income after all costs and taxation be sufficient to meet the monthly care home costs?

tacpot12

If there is no chance she will ever not need to be in a care home now, she could sell the house and invest the money to provide more income. It's less hassle and less risky than renting; although the tax can be a little daunting until you have a process in place. The risk with renting is that you get a tenant who doesn't pay, so you Mum doesn't have the income she needs. 

Any money left over can be left to you with no IHT to pay providing it is under the Nil Rate Threshold of £325,000. 

Albermarle

It is probably worth pointing out that Deprivation of assets is only an issue if the LA has to pay for care.
If the OP or the OPs Mum pay their own way and do not require funding from the LA, then the LA is not interested in any past financial transactions.

WIAWSNB

Slambos.

Is your dad deceased? If so, your mum will likely have his 'Nil' inheritance tax rate transferred, or be transferrable, to her, so the £325k threshold should double to £650k, hopefully more than enough for there to be no IHT.

Will renting out her home, coupled with her savings and other assets, cover her care costs? If so, that is surely the simplest - and also the correct - way to proceed, ideally securing the property for you on her passing? If not enough, how much would you be able - and prepared - to contribute in order to prevent the house from being sold?

Renting out can be a real hassle, so Tacpot's alternative of selling now and investing is worth considering. Eg, ~5% should be achievable with little effort, so providing ~£20k pa before tax. Again, will this be enough?

elsien

Do you have power-of-attorney for her, and does she have capacity to make these decisions herself? 

If she has capacity, does she want to be a landlady with all the hassle with it involves; If not, you need to make a proper Best interest decision weighing up all the pros and cons about the benefit and risk to her. Your wish to keep the house is irrelevant. 

There may be better ways to make her money last, particularly when it’s going be harder and harder to evict problem tenants in the future.