Renting the home

Clients who own their property and need residential care might consider renting their home to help fund care costs.

Advantages and disadvantages

There are a number of reasons why it can make sense for a client to rent out their home to help pay for care costs. These include:

  • Keeping the family home in their estate. Given the new residence nil rate band introduced in 2017, this could be an effective strategy. It means that, together with the nil rate band allowance, no Inheritance Tax is payable on properties worth up to £475,000 (assuming the home is left to direct descendants and total value of the estate is less than £2m).
  • If property markets are flat or falling, it may be sensible to delay selling until the property market improves. In the meantime, renting a property could generate an income without having to sell.
  • If the client has a deferred payment agreement with the local authority they might be able to rent the property to help meet costs, but this has to be agreed with the local authority in advance. 

Clients should be aware of the following before they take this step:

  • Raising additional income through renting the home could have negative impacts on a client’s benefit entitlements. For example, it could affect any means-tested benefits.
  • Rental income is taxable, which could push someone into a higher tax bracket.
  • Becoming a landlord comes with responsibilities. Clients should bear in mind that they'll need to manage the property, or arrange for it to be managed. They should also take out landlord insurance. More information on the requirements on becoming a landlord can be found View - here.
  • There may be periods where the property is unoccupied or tenants default on payment. Money should be set aside for repairs and maintenance. These costs can undermine the benefits of renting out a property. Some costs can be insured against or transferred to a managing agent, but this will incur extra expense.
  • There may also be View - Capital Gains Tax when the property is eventually sold. 
  • If your client has a mortgage on the property they want to rent out, they must get permission from their mortgage lender.

Who might this be suitable for?

  • Someone who wishes to keep their property rather than sell it.
  • Someone who can find someone else to manage the property while they are in care. This can be done by a lettings agent, but someone will still need to liaise with the lettings company.
  • Someone who has other income and/or savings to cover the remaining care costs as it's likely the rental income alone won't be enough. Other expenses such as letting agent fees and maintenance and repair costs should also be considered.

Useful sites

We've selected a range of articles and further information on renting the home for paying for care.

Information researched and accurate 21 June 2019. Not to be relied upon by advisers or their clients.