Do we sell or rent Mum’s house?

The Issue

My 81-year-old mother has decided to move into a nursing home this month because she is very frail and has Parkinson’s disease. My two brothers and I are unsure whether to sell the house (worth about £600,000) or rent it out. Mum has savings of about £140,000 and a good pension, which will cover the cost of her care for the foreseeable future, so there is no real hurry but for obvious reasons we do not want the house sitting empty for a long period.

The Solutions

Given the ageing population, mounting care home fees continue to cause great concern. Mum will probably have to pay her care home fees in full since her assets are worth more than £23,250. If they were under this figure, she might receive some contribution from the local authority. There are certain legal and financial aspects to consider. If you decide to sell, the residence nil rate band (RNRB), an additional tax-free threshold currently of £175,000, may still be available even if that home is no longer part of her estate on death. Briefly, the RNRB is available where the residential home is left to direct descendants (including children) to reduce an estate’s inheritance tax liability.

Ordinarily, if Mum does not own the house at her death, then no RNRB is available. However, the Government recognised the need to preserve the availability of the RNRB for those who sell homes to fund care home fees, in circumstances where the former home would have qualified for the RNRB had it remained in Mum’s estate and their direct descendants would have inherited at least part of the estate. This is commonly referred to as downsizing relief.

Accordingly, if you decide to sell Mum’s home in future to release enough funds for her continued care, provided all the necessary conditions are met on her death, it is possible her estate will still benefit from this potentially valuable tax relief. There is no time limit between the sale and the date of death, and you do not have to tell HMRC when the sale occurs. Mum’s executors must make the claim for RNRB and any downsizing relief when completing the inheritance tax returns after she dies.

Alternatively, the property could be rented out and any rental income used to fund her care home fees, particularly if the family would prefer to keep the property for a period. In the current climate when house prices are unstable, renting her property to generate a steady source of income to pay for care could be an attractive option.

However, there are practical costs and considerations of doing so. For instance, ensuring maintenance costs are available or that all legal requirements, such as registering the tenancy deposit, are complied with. Importantly, any rental income generated is taxable. You need to consider whether receiving this would push Mum into a higher income tax bracket. This also may mean there is less money in the pot to cover expenses and so on.

Regrettably, there is no straightforward solution and the family should consider Mum’s circumstances in the round before taking action. While Mum comfortably has funds to pay for care in the short term, considering the legal and financial ramifications now is important and the necessary professional advice could clarify concerns in the long term.

If you have any concerns with similar issues, contact your Prosperis adviser at 01423 223640 or email us below for a free initial discussion.