Elderly homeowners who move into care homes could face capital gains tax when later selling their home, unless government plans are amended.
Figures from care home research group Lang and Buisson reveal that there are 380,000 care home residents in the UK, of which an estimated 1 in 4, or 155,000, are home owners.
Many of these care home residents would be liable to pay house capital gains tax if they decide to sell their home, as many do to pay the continuing cost of care. They would be liable for capital gains tax on second property, once they have been living in the care home for 3 years, as their home is then deemed by HMRC no longer to be their primary residence. In effect, their home would have the same status as a second home or a buy-to-let property, at that time.
Capital gains tax on second property would apply in this case to homes that increase in value by more than £10,000 during the 3 years the owner is in the care home. Capital gains tax on second property does not apply to the full property value, but to the increase in the value of the property during the 3 years when the elderly person was in care.
Equally, the tax could apply to those who bought a second home on a buy-t0-let basis, as part of their pensions and retirement strategy.
The level of capital gains tax they stand to pay could be much higher than the current level of 18%, as the government has already stated it wishes to increase capital gains tax to bring it closer to 40%.
Many elderly people enter care homes with good prospects that they will return to their own home at a later date. They retain their homes for that reason, but in cases where a planned shorter stay in a care home becomes a stay of several years or more for health reasons, the decision to sell their family home to fund the ongoing cost of care can fall beyond the 3-year deadline for the taxman.
There is one ray of hope for older homeowners – government spokespersons have this week stated they have no intention that those moving into retirement will be the target of the new capital gains tax allowance measures.
