Renting parents house out - in best interests?

[Thingamebobwotsit]

Has anyone ever rented their parents property out instead of selling it for care fees?

We are in the position that (currently) it would be in the family member's best interests to get an income from the property, rather than sell up front. But with the new renters bill I am unsure if I can face the hassle.

What things should I consider before making the final decision? We may need to sell at some point in the future.

Sorry should have said - I have all the legal bits in place to make the decision on their behalf. This is about whether I want the extra work (or can outsource it) even though it makes sense financially!

Is it financially viable? We found the rental income was less than a quarter of the monthly fees so unless there is also a pot of money in the bank it’s going to be hard to manage. It’s costly upfront too getting everything in order and if anything goes wrong you need to have the backup funds too.

Have you ever been a landlord before?

How will repairs and general up keep be managed?

Whats the expected timeframe 2 years or 20 years?

NB how many other family mambers are there and how much support is being offered for the idea?

I recently sold the house of a family member after they went into a care home. A sibling was keen to look at renting (“income plus we keep the asset!”) but for a wide variety of reasons I thought it was a very bad idea. We sold the house and invested the cash and use the income from that and pensions (plus principal as needed) to fund the home.

If you want to pursue I would think carefully through all the costs. Costs of getting things up to scratch to rent, agent costs, maintenance costs, void periods, tax in the income. What if the renter doesn’t pay and it takes a year to evict? Have you done this before, can you do repairs to a high standard or do you have contacts. Etc etc.

I would also consider, and I’m sorry to be morbid, the life expectancy of the owner. If realistically they may live a year or two you will likely need to sell for probate anyway.

I would only consider it if it was through a council or HA scheme whereby the rent was guaranteed and they deal with the tenants.

If you get good tenants in good circumstances who pay their rent it's great. However, the costs of evicting a tenant now are so high it can easily wipe out a years profit instantly (sometimes will cost even more than that).

For me a as a LL the risk of that is worth it as I have no mortgage on my rental so if it doesn't make a profit in one year it's not a disaster as that money isn't earmarked for care fees.

Thanks everyone. This is massively helpful and will print out all the list to work through.

For more context for those that have asked: House is ready to go on market for rental or sale so that is all done. There is cash in the bank for care already. No mortgage or debt to pay off. And in a desirable location where good quality rentals are in short supply.

Only me to have to deal with it or make decisions so it effectively comes down to whether I have the appetite for the hassles and whether paying an agent to oversee it and making sure all the relevant insurances, etc are in place is worthwhile. And only me to inherit so not sure if that impacts probate?

I am planning on working this through with a financial advisor too to understand if the income through stocks and shares may be better. Or even a bond. So nothing is set in stone. I just don't want to be rushed into the rental / sale option without the full picture.

Any more thoughts most welcome!

Just another thing to add to the list. If you do keep the home and rent it out then you will be liable for Capital Gains Tax (CGT) on any increase in value.

Although there is a 9 month exemption. What this means is that CGT is ignored for the first 9 months after your parents move out of the property but, after that, any increase in value of the home will be subject to CGT.

I would strongly advise you to speak to a professional in this area

Keep in mind that even if you get an agent you need to have a really good knowledge of the legal responsibilities of a LL.

I'm currently helping the relative of a friend sort the mess she's been left in by an agent who was appallingly shit. She paid a very large amount of money to someone she thought would be professional and sort everything - she's now got a non-paying tenant that she currently can't evict as the agent missed the gas safety cert and then has issued incorrect notice twice.

We did it as the older person just needed someone else to pay the council tax for the property, the income from pensions covered the care fees. All very straightforward and no CGT to pay afterwards as the property hadn't increased in value.

Unless it’s a large property, in a good area, in very good condition, I honestly wouldn’t bother. By the time you’ve deducted agents’ fees, all the maintenance/insurance costs, and any income tax payable, the income is probably unlikely to make much of a dent in the typical monthly care home fees.

And that’s without any hassle from difficult tenants/tenants who don’t pay, etc.

However, only you will know all the figures and will be able to tell whether the sums add up.

Should add that as a family, we’ve had this dilemma twice - good houses in nice areas, and perfectly liveable, but both needing expensive updating (redecoration, kitchens, bathrooms, carpets, etc.) which none of us had the time or energy to organise, so both houses were sold.

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.

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

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.

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

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.

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.

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.

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.

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.

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.

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.

"…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

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

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.

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?

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!