Renting out your property to pay for your care 

If you are moving in to a care home, and you own your own property, a way to generate more income may be to rent out your house.

At UK Care Guide we understand that often the financial prospect of care can be daunting and difficult. That’s why we’ve compiled comprehensive articles on each method of paying for care to help you to make a sound decision.

This page is all about renting out your property to pay for care. In this article, we’ll explain how you can generate income from the rental of your property in order to pay for residential care.

How does renting out a property to pay for care work?

If you are moving into a care home and you own your property, one way to generate more income may by renting property to pay for care home fees. By letting out your own home, you can use this income and put it towards your care home costs. If you are putting your parent into care, renting parent’s house to pay for care may also be an option.

In some cases, you may be able to completely cover the cost of your care through property rental – or you may need to subsidise the rent money with funds from a savings account, pension or another source.

What are the benefits?

The key benefit attached to renting a property is that you continue to own your own home, which is something you and your family may be keen on. In addition, you may not want to sell your home to pay for your costs if you do not think you can achieve its full market value.

Therefore, you can rent it out until you feel it is right to sell. This flexible approach enables you to keep a couple of options open, and also to generate more income should the projected cost of your care be greater than the current value of your property  Renting instead of selling keeps a revenue stream open indefinitely.

What are the alternatives to renting

Instead of having the responsibility of maintaining a property you could instead use equity release to unlock some of the money tied up in your house.

The money you get will be tax-free.  You can read more about equity release here.

Is renting out my property the best option for me? 

You’ll need to consider all options carefully before making a final decision. Property rental is usually a good option for those who live in desirable areas with good prospects for a rental.

As above, the flexibility of renting allows you to maintain a continuous stream of income for an indefinite period of time – eliminating the need to worry about ‘running out’ of the funds needed to pay for your care.

Essentially the money from the rental goes straight towards (or completely covers) the cost of your care – so it protects your financial assets and the property itself for you and your family.

However, property rental is perhaps not a good option for anyone without family members or trusted friends to support them.

Even when you enlist the support of a specialist property management company, you will still be answerable for costs and ultimately you will be the key contact and decision-maker in the process.

For this reason renting could be risky – especially if you expect your health condition to deteriorate in the near future. Understandably it’s not appropriate for those who wish to remain in their own home or have a partner or relative who would like to continue to reside there.

Can care home fees be offset against tax?

Because they are viewed as personal costs in the UK, care home fees are typically not tax deductible. However, there are several situations in which some relief might be possible.

For instance, any or all of the charges may be categorised as “qualifying care costs” if a person is receiving care because of a certain medical condition, and a healthcare practitioner certifies that the care is necessary. For tax purposes, these expenses can therefore be deducted from the person’s income. 

These expenses may cover the price of nursing care as well as particular kinds of personal care. As tax laws can be complicated and subject to change, it is essential to speak with a tax expert or the HM Revenue and Customs (HMRC) for specific advice on unique situations. 

A person may qualify for local authority assistance for care home costs if their capital and income are below a specific threshold, which could ease their financial load. This is also something to keep in mind.

What are the risks?

Renting a property out can be challenging. It is important to be aware of both the pros and cons of renting out a house. You will need to think about how active you are and whether you or your family feel able to act as a landlord – and deal with all that this entails.

If you’d prefer to let someone else deal with the day to day running of your property then you can use a professional letting agency, but they will normally charge around 10% of the rental income to find you tenants and then manage the property and rental income.

You will still be responsible for the property itself – so it’s important to ensure that you and your family are fully comfortable with a rental as a main or partial care funding option.

Questions to ask during the decision-making process include:

1. Will I be able to manage the rental of the property myself?

Think about whether you have relatives or friends to depend on to help you manage the property rental – even if you plan on enlisting support from a property management company.

You should also consider what will happen if you lose mental capacity in the future, and make provisions accordingly. Arrangements such as Lasting Power of Attorney can ensure that you can smoothly pass on the responsibility to a chosen party.

Whilst you are considering this, we would also recommend that you make a will.

2. What happens when I can no longer rent the property?

If you are no longer able to rent out your home (perhaps you need to sell it, or a family member needs to move in) you will need to find alternative funding options. If you haven’t chosen someone who has Lasting Power of Attorney renting property out may be difficult.

It’s a good idea to consider all future eventualities as you make your decision to ensure that you’re as prepared as possible for any change in your circumstances.

3. What happens if I can’t rent the property and stop receiving income from it?

Although it may seem unlikely that you’ll be unable to rent your home, you may find that you have quiet periods or a month where you aren’t able to attract any tenants and therefore don’t benefit financially from the property.

This is why you should ensure you have a pot of money set aside to use in the event that your rental income stops unexpectedly.

4. What happens if my tenants don’t pay on time?

As above, it’s important to ensure that you have back up funds just in case you are unable to retrieve money from your tenants or property management company.

You should always have some money set aside to pay for your care in the unfortunate event that you do not receive rent money from your tenants – or if they move out suddenly.

Some insurance policies cover landlords for non-payment, but only up to a certain period of time. If tenants don’t pay for a prolonged period of time you can evict them and arrange debt collection – but this can involve a lengthy court process and is often stressful.

5. Can I afford to pay for essential aspects of the property’s rental from the money I receive?

You’ll need to factor in the cost of the property management company (if you decide to use one), as well as a maintenance person if you or your family are not going to be taking care of that yourself.

You’ll also need insurance, which can be paid monthly or yearly. The cost of this will depend on the size and location of your property and the amount of rental income you receive.

It’s also a good idea to keep a separate pot of money aside for essential maintenance – such as boiler repairs, utilities replacement and plumbing costs. Your rental income will be taxable – this is also something you’ll need to factor in. You can find details of this below.

6. Do I have a mortgage to pay?

Again, mortgage payments will eat into the funds you generate from renting your house out. If you are still paying a mortgage you’ll need to notify your bank of your intentions to rent your property. You can find more details on this below.

Will rental partially or fully cover my care bill? Before considering payment options like rental seriously, you’ll need to ensure you have a place lined up in a residential home and be aware of how much that costs per month or per year.

7. If the rental only partially covers the cost of your care, how will you fund the rest?

As above, if your care costs are fully or partially covered by the rent you’ll need to have a back up just in case.

It’s also crucial that you calculate the long-term cost of your care now, as this could have considerable implications for the future. You can use our care costs calculator to do this.

8. Could your care costs increase at a later date if your health deteriorates?

As above, it’s important to consider your care needs and how they relate to the current and potential cost of your care.

For example, if you are entering sheltered accommodation, do you expect to require nursing care at some point in the future? How much will that cost? Will it require further funding? These are all key questions to consider when thinking about rental.

Whilst renting in the UK is increasingly becoming common, it is still possible that there may be periods where the property is empty and therefore no income is coming in.

However, even if the property is empty you will still be responsible for its upkeep. You can find out more about additional financial implications of renting a property and maintenance responsibilities below.

9. Will I need to re-mortgage?

If you are under a mortgage obligation then you will need to notify your bank about your prospective rental. Currently, it is likely you’ll hold a residential mortgage – ‘buy to let’ mortgages are calculated differently (they are normally more expensive than residential mortgages).

You’ll need to calculate the cost of your mortgage into the amount of profit you make from the rental.

10. Will I need insurance?

Landlord insurance offers peace of mind and can protect you and your family against non-payment of rent, damages and any routine maintenance.

It’s a good idea to take this out to cover yourself against any unexpected costs or legal action. Of course this is another cost you’ll need to factor in when calculating the income you’re likely to receive from the rental of your property.

11. Will I have to pay tax?

The income you generate from the rental of your property will be taxable. You’ll need to fill out a self-assessment tax return to indicate how much you have earned from the property each year and pay tax on rented property.

You can calculate how much you’ll need to pay based on the current tax threshold – and it’s advisable to put money aside on a monthly basis to pay your tax bill at the end of the year if required.

12. Will I still be able to claim benefits?

Property rental is generally classed as a source of income – and this may affect the type of benefits and the amount of financial support you currently receive. You’ll need to obtain expert advice on this, or speak to the Citizen’s Advice Bureau. There is additional information available on the website.

13. How can I choose a reputable property agent? 

It’s advisable to choose a local property agent with good knowledge of the area. Word of mouth referrals are favourable compared with online reviews – so ask around to see whether anyone you know has used the services of a lettings or property management agent.

14. How much can I rent my house for?

When determining how much to rent your house out for, several factors should be considered. First, evaluate the renting house costs, such as mortgage payments, insurance, maintenance, and utilities, to ensure you cover your expenses. 

Additionally, research the tax on house rent in your area to understand the potential impact on your rental income. Take into account the local rental market, property size, location, and amenities to determine a competitive rental price that aligns with the current market rates. 

Seeking advice from real estate professionals can provide valuable insights into letting a house and help you make an informed decision.

15. Is equity release taxable?

Whether equity release is taxable depends on how you utilise the released funds. If you let your property and generate rental income, that income is generally subject to taxation.

However, if you use the released equity for personal purposes, such as home improvements or debt repayment, it is usually tax-free. It’s important to note that alternatives to renting a house, such as equity release, may have different tax implications. 

When declaring property income, it is essential to comply with local tax laws and regulations to accurately report any property rental income and fulfil your tax obligations.

16. What costs are involved in renting a house?

If you have decided to rent out your house, you might now be wondering “how much does it cost to rent out a property?”, and even more crucially, how to rent out your house to begin with. Renting a house involves various costs that should be considered. If you are letting your property, expenses may include advertising costs, tenant screening fees, and potential property management fees.

Additionally, specific costs can arise when renting property to family members, as legal and financial considerations may differ. When renting out a flat, expenses like insurance, repairs, maintenance, and property taxes should be taken into account. 

It is crucial to thoroughly evaluate the costs of renting your house to ensure you are financially prepared and can effectively manage the property.

17. If I rent out my house and rent another, do I pay tax?

In the UK, regardless of whether you are renting another house for your own use, if you rent out your property and make rental revenue, you are required to pay tax on that income. 

Your self-assessment tax return requires you to disclose the rental income you receive from your home, and you may be required to pay income tax on the profit you generate after subtracting permissible expenses such mortgage interest and maintenance and repair charges. 

Furthermore, you must pay the rent for any additional properties you rent for your own dwelling as a personal expense that is not tax deductible. Keep thorough records of all your earnings and outgoings from the two residences, and get advice from a tax expert or the HMRC for information particular to your tax liabilities.

What should I do next?

If you’re sure about renting home to pay for aged care costs then the next step is to figure out how to rent out a property. You must carefully assess all options and think about the advantages and disadvantages of each. There are a few things to consider – these include:

  • Creating a checklist taking into account each point discussed in this article. You’ll need to make sure that finance
  • Notifying family members and friends. This may only be necessary if you are obliged to do so under the Power of Attorney regulations or because of a will you have made. In a joint ownership situation, the other party involved will have to agree to the rental and will be entitled to a share of any funds generated from the property.
  • Ensuring arrangements have been made for your care. You shouldn’t make any decisions or arrangements regarding the rental of your property until you are sure about where you are going to stay and access care. You should have a place reserved ready for you to occupy as soon as your property is rented. You can find tips on sourcing and choosing the best residential home for you in our handy article
  • Finding a property agent. Use our tips above to help you find a reputable agent to take care of the rental of your property for you.
  • Preparing for your move. Consider whether you’ll need to sell furniture or other belongings, or pay for storage.

Our recommendations

If you are thinking about ways to fund your care home costs and are unsure about which option may be best for you then we recommend you speak to a specialist advisor who will be able to advise you on:

– Alternative funding options that may be available to you.

– The tax implications to you of letting out your property.

– The impact the rental income may have on your ability to claim benefits.