Renting parents house out - in best interests?

This is a thread from 9 months ago, the OP has probably moved on since then

you need to be up on all the aspects of renting. EPC’s, renters rights, awwabs law, electrical and gas certificates, warm homes, mees. If it’s old with no cavity. Costs a lot to heat an epc of c that you will likely need in 2030 maybe hard to achieve.

id be out of it if i could. Private landlords need to be up on everything, having an agent isn’t good enough anymore.

I rent out a house - I use a letting agency, in terms of work… it’s not that much, responding to emails or the odd phone call to ok stuff. I’m self employed anyway so I’m already filing income tax, but you’d need to do that too.

But, unless you’re really lucky with tenants, it works out that we generally only get about half the rental income a year. Routine maintenance, repairing and replacing damage caused by tenants, certificates and insurance, non paying tenants (happens even when checks are done before renting) remarketing and the letting agent fees take up the rest.

Yes I have been through both scenarios in the past 2 years. My elderly parents had divorced many years ago and both re married but needed to go into residential care homes (not together).

I sold my dad’s flat, invested the money for him so there’s plenty of capital to last him for the rest of his days.

We were unable to sell my mum’s property as it was held in Trust for her late husband’s family until her death. So we had to rent it out, she receives the net rental income, we decided to let it unfurnished. We used a ‘fully managed’ service with the rental agents but there are still reasons for them to contact us to approve maintenance works etc. The net rental income only pays about 17% of the care home fees, it may be less for you if you have two parents in care. So far we have had good tenants but I still feel nervous about the pitfalls of renting, void periods, bad tenants etc. There’s also the fact that house sale prices aren’t rising as much as they have in the past, so holding onto to it doesn’t gain you much eventually.

On balance I would recommend selling your parents’ property, investing the money into longer term savings and easy access savings to help with care fees. When you rent, the monthly rent gets whittled away by agents fees, statutory landlord costs, maintenance bills, tax etc. you might lose a third to a quarter of the gross rental amount depending on circumstances.

Someone else alluded to the fact that the rental period wouldn’t necessarily be that long. The average life expectancy of someone going into care is 18 months, this would of course depend on your parents’ ages and medical situations.

We just didn’t tell my DM that she’d never be going home - it was out of the question anyway. (Dementia). I told her a lot of fibs, which she’d forget within a minute anyway.

She’d always been an inveterate ‘mover’ and had often spoken of a ‘little flat, so I used to tell her I was looking for a nice little flat for her, just down the road from me, and as soon as I found a really nice one, we’d go and have a look together.

Always kept her happy for the moment.

HMRC has a pretty involved calculation for working out the CGT.

See here Tax when you sell property: Work out your gain - GOV.UK

Off the top of my head the period when the property was lived in by the owner would qualify for private residence relief - so the way the formula works that bit shouldn't be taxed. The time while the owner was in a care home and the property was unoccupied - I don't know the rules for that. If it wasn't a long period maybe it won't matter too much?

You also get an automatic period of 9 months (check this?) which is automatically discounted.

If your relative dies while in care - then surely that resets the CGT liability? So CGT would only be from when the inheritor took ownership.

As to whether it's worth the hassle of renting - up to you. If the property is in an area with high demand for rentals and is the kind of thing that gets let out easily - I'd say it's worth considering. It could work well if you can pick and choose your tenants, or even go through word-of-mouth, and if you are local enough to be hands on and keep an eye on things.

If you will need to rely on an agent to manage the property for you then forget it. I've seen them rip-off tenants and landlords alike - mostly at the same time. No.

Please consider that if you rent it out, Capital gains tax will become due upon the later sale.

Ive rented a property - never again!

In our case the tenants stayed until they gave notice. As we didn't then have probate, we let it out again on a year long tenancy.

You do what’s best for the person, if they need the money to pay for the CH, then it’s got to be sold, no matter what they think. They’ll only know it’s been valued if you tell them!

Thank you (I think😯)..how is home valued at pint when folks go into care…in dads case he’d have been furious if we’d said we needed to get valuers around after 3 months in care..he thought he was going home…he was under deprivation of liberty not a voluntary move…he was in nhs mental wards for months and months, , then briefly in care home, then back to hospital before finally being in nursing home on end of life…how the heck would thst havecworked to say “hey dad, we going to have to value your home for HMRC becuase you’re never going home again”? He already was hallucinating badly about lots of terrible things including owing huge debt on his home (which he didn’t owe btw, house paid off years before) and that would have sent him into a worse state…

What if person is not ever going to agree they’re never going home?

Because once she moves out of her home and into the care home (for at least three months) then the care home becomes her main residence.

Why..it’s mums main residence? Why would she be charged captial Gains if sold at probate or before?

"…but it remains her mums main residence. No captial gains applies"

You are mistaken, CGT will apply.

However, I notice that I also made a mistake. For a person becoming a long-term resident in a care home then there is a 36 month relief period (not the 9 months I mentioned above which applies to everybody else unless they're disabled).

So any increase in value is ignored for three years.

This is due to Section 225E, Taxation of Chargeable Gains Act 1992

We did this.

After the death of one of my parents, the other was unable to stay in the house alone (biggish house, huge garden etc) so after trying visiting carers (didn't work very well) it was decided that a (self funded) care home was the only solution.
Parent was adamant that house was not to be sold and as money to fund the care home was not a problem, it was agreed to rent it out.
Worked ok, an agent looked after the house and we dealt with the finances. Private & state pensions plus the rental income just about covered the care home fees and savings were available for any shortfall or unexpected expenses.

When my parent died a few years later, I was able to move into the house myself (it had been the family home while I was growing up) so it was nice we had been able to retain it in the family.

Would sell/have sold....
Has the house been empty for a while, has someone been airing it out to prevent mould build up? Happens surprisingly quickly.

We sold MIL house to help pay for her care. Upkeep costs on the house were not insignificant, council tax, water, standing charges on electricity and gas, buildings and contents insurance could not really continue to be justified under the POA and the house needed updating to get an energy certificate for rental. So it was sold and a whole level of stress just floated away.

Forgot to add, that we had only just renewed the tenancy when dad died so we had to wait 11 months before we could sell the house and finally sort out probate.

We did this when Dad went into a care home. His house was rented out for £1200 a month and after taking into account his pensions, we only needed to top up his fees by about £800 a month. My brother worked out that he had enough savings to last 13 years at that rate and as he was 88 when he moved to the care home, we decided it was the best decision.

However, I’m not sure it was really cost effective by the time he died after 3 years. We had to spend about £3000 to get the house to a decent standard to rent out ( decorating, new bedroom carpets, safety checks etc) and after property management fees and tax on the rental income, I think we ended up with about £800 a month to go towards the fees.

We were also left with a fair bit of damage after the tenant left when we sold the house after dad died, there were regular inspections by the property company so most of the damage must have been done in the last six months. The value of the house was lowered by £5k according to the estate agents who valued it for sale so we spent another £2,000 redecorating and repairing the damage to the walls and carpets.

Initially I was in favour of selling as soon as dad went into the home as I thought it would be too much hassle but my four siblings outvoted me! Luckily my brother already owned a rental property so took on the responsibility for all the management and doing the tax returns etc but it was still a lot of work for all of us.

Think carefully about the pros and cons before making a decision, owning a rental house can be very expensive if something goes wrong, like needing a new boiler or the tenant not paying their rent, especially in the short term. Over a number of years if house prices rise, it might be more cost effective but we certainly lost money over the three years we rented out dads house.

The rent per month on the property I exh used to own would have barely covered 4 days of dads fees 😳
2 bed flat in nice part of Edinburgh , so not cheap place.

Op, do you have LPOA? I think some advice from solicitor would be useful to ensure that under the LPOA (or even Older EPO) you’re mum has expressly said what you can and can’t do.

we thought about this for Dad. But he had Lewy body dementia so was more aware of his predicament and was constantly asking to go home. Despite being under section 117 he could still make some decisions. My eldest sibling had EPO, and we were told by solicitor he could not act to make a decison to sell or rent house out, becuase it wasn’t an urgent need to do anything, and that attorneys should only act to change something if there’s effectively a burning platform, unless the documents expressly and explicitly says they can. And dad, even with dementia was clewrly not wanting to sell- he wanted to go home 😢.

In other words you can’t assume under a POA what the person would do, so do nothing different unless you absolutely have to

obviously house has to be sold if other funds run out and money is then needed for care. I think at that point you could argue it makes better financial sense to rent then sell…if you were really sure you knew what you were letting yourself in for

perosnally, I’d stay well clear of renting. We inherited a property from my exh parents, and he wanted to rent it…never did make a profit before we divorced (7 years later) as cost a lot to fix up and ongoing costs, it was a massive stress and hassle with tenants….and law is even tighter now. What if you rent and mum passes away quickly- you’ll have a house in probate you can’t sell due to tenants unless they volunteer to leave at end of tenancy.

you also need to check terms of her will re sale of house at her death..does it expressly say it needs to be sold, or does it just leave to you to d3cides what you want to do.

renting a property while house is in probate could be tricky - where does rent get paid to (all accounts of deceased are frozen at death ) and that rent would be owed to estate not you until probate is granted. And potentially taxed as income tax from estate

all very messy and risky imho. But I’ve been renter and landlord and none are happy stressless experiences.

Er no…it still counts as mums house, not the poster, until it’s sold. I assume poster will be making decisions and doing work under a LPOA …but it remains her mums main residence. No captial gains applies

After mum passes away property will be valued for probate. If property isn’t sold immedately, even due to delays with granting probate or market surges, then and only then is capital gains payable by mums estate

it is not the op’s house. She doesn’t own a second home not her main residence that would be subject to captial gains.

the income form renting would be taxable under her mums name - that would involve self assessment if she has full state pension already (effectively using nil rate tax band already) and /or other private pensions/ interest or divs.

I would strongly consider just selling and getting an income from the savings interest…

I’d sell it. Think of all you’d have to do to get it ready for renting, and then I can’t imagine your net rental income would dent the care home fees that much ? I’d sell it and invest the equity wisely and take an income from that.

If they are in a care home why do you need to keep the house for them? It seems much more simple to sell.

Years ago I ended up as an accidental landlord for a while (needed to work elsewhere in the country for a period of time). It was a lot of hassle, even with an excellent letting agent. The agent took 15% of the rent, and you have to pay tax on what you receive too. Plus maintain a sink fund for repairs and to cover any void periods. I was lucky and had good tenants who didn’t cause any damage but I’ve heard a lot of horror stories and it’s harder now to evict a problem tenant, who might not pay their rent for months.
Having a good agent means you should be ok for the legal requirements, having a gas safety certificate, tight insurance etc. And ideally they’d have the contacts for repairs, plumbing etc.

But unless you have a lot of other money easily available to pay the home
fees I wouldn’t do it. The amount from
rent (area dependent) would only cover about a week’s worth of CH fees in any month.