Paul Brace's mother is 88, suffering from dementia and needs to move into care. Paul is selling his ...
Paul Brace's mother is 88, suffering from dementia and needs to move into care. Paul is selling his mother's house and worried about how quickly the proceeds will disappear in care fees.
Mrs Brace has just £2,000 in the Post Office and a very low income. Years ago when Mrs Brace purchased her house, Paul put down the deposit, and so has a 30% stake in the house under Tenants in Common.
After assessment for care and financial needs, the Local Authority Social Services worker suggested the house be put on the market straight away, saying that they would fund the care fees for the first 12 weeks under Property Disregard. Paul's first thoughts were to let the house. However, as the care fees are £300 a week, he could see that this was a non-starter. The house was put on the market at £180,000.
We were able to explain to Paul that an important issue had been overlooked. Paul owns 30% of the house and this will prove to be more valuable to him than he had envisaged.
We suggested to Paul that he choose not to sell his 30%, and instruct agents to sell his mother's share only, producing the following effect:
There is unlikely to be a purchaser ' would you buy a house where a stranger owns 30%? As a result the value of the property will be low. With little or no assets Mrs Brace will qualify for full state funding. Paul wants the best for his mother and has found that the maximum state funding level is below the fees required by the better local care homes. Any balance will have to come from the family. Here Paul will need to be careful.
If he lets the house, 70% of the income will belong to his mother. The rent, after tax, will not benefit Mrs Brace as the amount of benefit will be reduced by the rent received.
If Paul sells the house then 70% of the proceeds will go to his mother and Mrs Brace will then have to pay for her own care.
Paul could move into the property and let his own house but he does not want to.
Other alternatives are to pay the top-up from Paul's own income or capital. In the event Paul is getting a further advance facility under a flexible re-mortgage to fund the top-up as required. This will ensure that his mother will have the best level of care and the inheritance is protected.
Paul needs to be aware that capital gains tax will have to be paid on his share of the property when it is eventually sold. However, if Paul helped buy the house for his mother as a dependent relative before March 1986, then he would be able to claim an exemption against capital gains tax.
Derek Williams is director of Direct Financial Services
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