MIL in care home - what to do with house

[Chupney]

MIL is now full time in a care home with moderate to severe dementia. DH wanted to rent out her house to pay the fees but as it's a assisted living house she can't sublet. However if he sells the house it will no longer be exempt for inheritance tax purposes (her estate is about £650k). She has enough savings to pay her fees (house is worth about £200k) but obviously the house is currently unoccupied and being 45 mins away is a pain to visit every 30 days for house insurance purposes.

If he sold the house and bought another he could rent out to assist with her fees presumably because she'd never lived in it, it wouldn't be inheritance tax exempt?

She was always so keen to avoid inheritance tax when she was fully cognisant (ex accountant) but no one forsaw the issue with the subletting (she bought it when she was fully cognisant) or the fact she'd need full-time care outside her home (alarms etc she thought that was all she'd need till she died).

What would you recommend DH does for the best?

What to do for the best is sell the property and pay any taxes that are due, now or in the future.

This is from the link above but I still don't understand it!

www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold

*Example
A woman sold her home for £285,000 in October 2018 to go into residential care.

The maximum RNRB in the tax year 2018 to 2019 is £125,000.

She dies in March 2021 with an estate worth £500,000.

She leaves half of her estate to her son and half to her nephew.

The maximum RNRB in the tax year 2020 to 2021 is £175,000.

There’s no entitlement to the transferred RNRB when she dies.

The maximum RNRB at the date of sale was £125,000.

The house was sold for £285,000. Divide this by the figure at step 1, but limit the percentage to 100%.

There’s no home in the estate so the percentage here is 0%.

Take away the percentage at step 3 (0%) from the percentage at step 2 (100%). The percentage at step 2 stays at 100%.

Multiply the maximum RNRB (£175,000) by 100%, so the total lost RNRB is £175,000.

The value of the home at the time of the sale is more than the maximum RNRB at that time so the whole of the RNRB has been lost.

Before she downsized, the woman’s estate could have qualified for the maximum RNRB at that time. So, when she dies, the lost RNRB as a result of the downsizing is £175,000.

The downsizing addition is the lower of the value of other assets that are left to a direct descendant and the lost RNRB.

As she leaves £250,000 of other assets to her son, a downsizing addition of £175,000 is due.

If instead she’d only left £100,000 to her son and the rest of her estate to her nephew, the downsizing addition would be restricted to £100,000.*

We had to look after a house after my husbands aunt went into a care home. It really was an awful amount of work. The house was only 20 mins away. There will be conditions attached to the house insurance about the house not being empty all the time. We had problems with leaking pipes, mice and over growing trees in the garden. The house did not belong to my husband’s aunt. Her husband left it to a charity and she had occupation until she died.
I don’t know how long you expect your MIL to live but inheritance laws do change from time to time.

Something else to consider is home insurance. Most insurers require notification if a property is unoccupied for more than thirty days, otherwise the insurance becomes invalid.

Sorry but I think you need to see an accountant..

Your MIL could live for a number of years. My uncle went into a care home with dementia and despite numerous other health issues and 3 assessments for continuous care funding, he was not scored highly enough to qualify and had to pay the fees. He survived for almost 8 years, deteriorating, until he was in an awful state. It cost him more than £300,000 in fees and that was several years ago when he died.

My solicitor told me that you can keep the additional residential rate (£175k) once the property is sold providing the beneficiaries of the will are immediate descendants - so children or grandchildren. I think there’s a grey area about how long the downsizing element qualifies for RNRB but she seemed to think it was a few years. We’re currently selling my father’s house as he is now in residential care.

There must be many people in care in this situation, where their total assets include the proceeds of a house sale, so I think that’s why the downsizing clause exists.

Not sure whether any of that makes sense! I do understand it but have difficult explaining it.

He's got unoccupied house insurance sorted hence needing to go every 30 days.

Incidentally we looked at the renting out option but it was starting to look so complicated that we didn’t feel it was viable. Once agent fees were deducted, and tax paid on the income (my dad’s on a good pension so pays tax at the higher rate) it just didn’t seem worth it for the stress. We’re hoping once the house is sold we can put the money in a high interest account and he can benefit that way.

@Chupney - Sadly the one his mum used died about 18 months ago just after he got POA. And it's all been downhill for her health and his efforts since.

I'd find a new advisor then. It's a complex area.

Best of luck. It's such a tricky time, and your h will be feeling all kinds of emotions.

You will need to factor in council tax costs for the empty property if you don't sell. My DM's assisted living apartment was empty for 4 years after she went into a nursing home and later died, and we ended up paying the astronomical service charges and also double council tax as it was empty for > 6 mths.

The maximum she could pay in inheritance tax on a £200k home is £40k. How much is she paying in service charges, insurance, bills? That could easily be over £1k a month. I can’t see how it’s worth keeping the house to potentially save £40k minus £1k a month for however long she lives. There’s a reasonable chance she’s going to end up below the IHT threshold anyway.

*£80k, sorry!

www.gov.uk/inheritance-tax
His idea of avoiding IHT at all costs because 'his my drummed it into him' doesn't necessarily means it's the right thing to do. He still stands to gain a large amount of ££, can't abide the grasping involved in inheriting.

Actually with power of attorney you need to act in the best interests of the vulnerable person and that includes making good financial decisions so selling the house makes sense.

Thanks everyone. For the first few months in the home she made it so hard for DH to leave because she insisted she wanted to go home. Claiming she'd catch a taxi if she had to. So he's been reluctant to think about selling it although he knows now she can never go back (her previous carers said her needs were too high). He's trying to do the best in a situation he has found himself in through no fault of his own.

She doesn't actually have an income but yes all the service charges, council tax etc will eek away at her cash reserves. Which are what pays her fees.

I'd definitely sell the house and buy another one to rent out. If you get the right sort of thing, she'll get a decent income on it which (along with the savings in council tax and service charges) could be more than compensate for any increase in inheritance tax.

Obviously a lot will depend on how long your mother in law lives. For that reason, I think all decisions are a bit of a gamble. It's the same with the decision about whether or not to buy an annuity.

I think you just need to make the best decisions you can at the time and not worry too much about trying to working out afterwards whether you'd have been better off doing something different.

Get advice and to be quite frank.. ignore any comments suggesting you should just pay the IHT and not look to minimise it.

The vast majority of UK wealth is held by families who go to great length not to pay any IHT. Direct your thoughts their way if you feel even the tiniest bit of guilt. Read 'who owns England' if instead you want to feel rage! Most of the IHT avoidance vehicles are complex and require the services of skilled tax accountants and lawyers, that charge ongoing fees that seem out of reach of the average family with an average home needing to keep sufficient funds to pay for care homes.

I believe if a person is in a care home

Their empty property is exempt from council tax, but you would need to check with their council

I can't remember exactly how it works but there are "downsizing" provisions with the residence nil rate band so that you can potentially claim it against a smaller property/ proceeds of sale. It is quite complex even without the POA / rental property / care fee aspects. Worth paying for proper legal advice I think - look for a solicitor with STEP qualification

I agree!

If she is self funding she is subsidising at least one, possibly 2 other residents in the care home who are state funded. I think that is a pretty decent contribution to be honest.

Speak to Age UK and an IHT planner.
Ultimately, anything she makes from the sale of the house or income from the house will be taken for the fees anyway.