3 Reasons to Let Your Property to Pay for Care
If you need to use your property to pay for care fees what are your options?
The most obvious solution is to sell your property. If you’re moving permanently into residential care you and your family may think there is little point in holding on to your home especially if your care home bills are rapidly mounting.
But is selling your only or best option?
Here are 3 reasons to consider an alternative – letting your property.
A sale is final. Once you’ve sold your property that is it.
You’ll suddenly have a fixed sum that is rapidly being eaten away by the cost of your care fees. Even with careful investment low interest rates could mean not enough income can be generated to cover your care costs.
You could use the sale proceeds of the property to purchase an Immediate Needs Annuity (sometimes called a care fees plan). This guarantees regular tax-free payments are made direct to your care-provider to cover your fees.
However, if you only live for a short period of time after the plan has been set-up your family will lose the lump sum you have paid in.
Some immediate needs annuity plans will repay part of your lump sum when you die provided that you pay an extra premium. But premiums are based on your life expectancy so if you come from a line of long-lived folk your premiums are likely to be high and could swallow a large part of the sale proceeds of your property.
Market conditions for a sale could be poor.
If you are relying on the sale proceeds of the property to pay for your care fees your property might have to be sold at a time when the property market is weak and prices are relatively low. If your property needs some updating it is going to take longer to sell unless you’re prepared to drop the price.
Most older property owners have properties that are out of the price range of first-time buyers so you could well find your property is caught in a chain of transactions. It’s common for property chains to breakdown and completion of the sale can be delayed by weeks or months.
Properties that stand empty for long periods tend to deteriorate and be less appealing to buyers.
Letting your property gives you time to consider all of your options.
It’s often the case that a move to a care home happens suddenly – perhaps following a period in hospital. It might not be absolutely clear whether the move will have to be permanent and it often takes time to adjust to a sudden change of environment. A decision to sell your property could make you feel pressurised and might be something that you and your family later regret.
Obviously, leaving a property just standing empty can lead to extra expense because it still has to be heated, insured and maintained. Putting tenants in the property could give an average yield of 4 or 5% depending on the type of property and location and provide a way to avoid the property just becoming an extra financial burden at a time when your finances may be stretched.
If you’re concerned that there could be periods when there is no rent being paid it is possible to buy landlord insurance to guarantee the income during periods when no rent is being paid.
Points to consider
It has to be said that letting a property is not for everyone. There are increasing legal responsibilities attached to being a landlord and there can be difficulties with tenants as well as income tax and potential capital gains tax issues.
Before letting a property it is important to take professional advice and ensure that properly drafted tenancy documents are signed before anyone is allowed into occupation of the property – even if the prospective tenant is a member of your family.
You can follow the link to get a template for an assured shorthold tenancy agreement here.
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This article is for general interest only and does not constitute legal advice.
Image ‘ For Rent House Means Property Tenancy or Lease’ by Stuart Miles courtesy of FreeDigitalPhotos.net