Care Home, Rental Income, Tax?

Care Home, Rental Income, Tax?

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I have a new client who lives in a care home. Her financial affairs are looked after by her niece and I have prepared the tax return for 2010/11. My client has a liability of just less than £1,000 for 2010/11 mainly due to the rental income received on her old home, which has been rented out since she moved into the care home.

My client's niece tells me that my client doesn't have any money to pay the tax liability as her state and private pensions are all paid to the care home as does the rental income. So basically, client has little money, certainly not £1k to pay tax due on rental income. Her niece thinks that she will have to find the £1k to pay the tax from her own funds - seems unfair. I've suggested that we may get around this by coding out the underpayment and including a rental deduction against her personal allowances going forward. But there may not be sufficient income and therefore tax to collect all of this tax, due to 50% rule.

However, they'd rather settle by direct payment if possible. Does anyone have a client in a similar situation? Surely if the care home is getting all her income, they should have budgeted for the tax liability on the rents? They can't just expect someone else to pick up the bill can they? They seem happy to take in the pension income after tax, so it would seem sensible to me that it would be the same on the rents. Unfortunately, I don't know where to start to look.

She doesn't want to sell the house as apparently the fees are cheaper if the local authority include a charge over the house in comparison to the fees payable if the house was sold.

Any thoughts?

Thanks in advance.

Replies (4)

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Stepurhan
By stepurhan
23rd Jul 2011 08:09

Agree your budgeting comment

The tax should have been budgeted for. Whilst living in a care home at all is rarely a matter of choice, the level of costs you are willing to pay for a care home should be based on your after tax income. We may feel some sympathy for a client who has to live in a care home, but that is a bit of a red herring. To take that out of the equation, this is equivalent to someone living in a larger house where they need to use their tax money to pay the mortgage. Would we have sympathy for someone doing that?

The best I think you can do is look at alternatives. Firstly, look at the figures excluding the tax due and see if there is a suitable home for that reduced figure. Secondly, have a look at the position regarding selling the house. My guess is that the local authority would reduce their payments because the client would then have a lump sum which they could use to pay the fees. That seems not wholly unreasonable. Should the client live long enough for the lump sum to run out then presumably local authority would resume higher payments. If this is the case, is the reluctance to sell the house actually borne out of a desire to pass it on to the next generation rather than a short term effect on local authority contribution?

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By Tosie
24th Jul 2011 16:14

Confusion

The client has to do her own budgeting. The home is a business and wants their money. If the client's income covers the care home fees the Local authority are not involved as client is self funding. It maybe coincidental that the client's income just happens to be the same as the care home fees. If you code the underpayment she will have a shortfall on her fees next year.

Suggest client (or niece) looks at taking a loan on the house  or equity release.

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By ACDWebb
24th Jul 2011 23:25

What is the deal re

"She doesn't want to sell the house as apparently the fees are cheaper if the local authority include a charge over the house in comparison to the fees payable if the house was sold."??

A local authority home? Did they not consider tax when they ventured into this arrangement? Seems odd.

 

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By Alex997
12th Sep 2014 11:45

Rental Income Tax Guidelines

Here are some guidelines on rental income taxes and some top tips to reduce it which you may find useful.

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