There may come a time when an individual can longer manage on their own at home and has to leave their main residence to go into care. Depending on their financial circumstances, they may need to sell their home or rent it out in order to meet some or all of their care costs.
Selling the main residence
A person may not have time to plan their move into care – the move may be dictated by circumstances. An unexpected fall may lead to a hospital stay followed by a move into care. Consequently, the property may be empty for a time before it is sold.
Where the property has been the only or main residence at some point, the final period of ownership qualifies for private residence relief. This allows time for a buyer to be found without the loss of relief. For a disposal occurring on or after 6 April 2020, the final period of exemption applies to the last nine months of ownership, reduced from 18 months for disposal before that date. However, where either the individual or their spouse or civil partner is a long-term resident in a care home, the final period exemption applies to the last 36 months of ownership. This is the case for disposals both before and on or after 6 April 2020.
Thus, if the property was occupied as a main residence until the person went into care and the disposal occurs within three years of that date, the gain will be fully sheltered by private residence relief.
Following the death of his wife, Albert moves into a bungalow in September 2014, which he lives in as his main residence until June 2018, when he moves into a care home following a fall. The property is finally sold in May 2020, realising a gain of £80,000.
The gain qualifies for private residence relief in full. Although the disposal took place on or after 6 April 2020 and, at 23 months, the period from the date on which Albert moved to the care home and the date on which the property was sold is more than nine months, as Albert is a long term care home resident, he is entitled to the longer final period exemption of 36 months.
Letting the property
The family may wish to retain the property rather than sell it, particularly if it has been the family home. Instead, a decision may be taken to let the property out to generate income to pay for the care.
Normal rules apply as regards the taxation of the rental income and the individual will be taxed on the rental profits.
If the rental income is less than £1,000 year, the individual can take advantage of the property income allowance and enjoy the income tax-free. Otherwise it is necessary to complete the property income pages of the tax return and pay tax on the profit. Normal rules apply – there are no modifications where the landlord is in care.
Partner note: TCGA 1992, s. 222, 223, 223E; ITTOIA 2005, Pt. 3.
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