Should we sell my mother’s house or rent it out?

My 81-year-old mother has decided to move into a nursing home this month because she’s very frail and has Parkinson’s disease. My three siblings and I are unsure whether to sell the house (worth about £600,000) or rent it out.

Our mother has savings of about £140,000 and a good pension, which will cover the cost of her care for the foreseeable future, so there is no real hurry but for obvious reasons we don’t want the house sitting empty for a long period.

Lilly Whale, a solicitor in the private client team at law firm Goodman Derrick, says that given our ageing population, mounting care home fees continue to cause great concern. Your mother will probably have to pay her care home fees in full since her assets are worth more than £23,250. If they were under this figure, she might have received some contribution from the local authority.

There are certain legal and financial aspects to consider. If you decide to sell your mother’s home, the residence nil rate band (RNRB) — an additional tax-free threshold currently of £175,000 — may still be available even if that home is no longer part of her estate on death. Briefly, the RNRB is available where the residential home is left to direct descendants (including children) to reduce an estate’s inheritance tax liability.

Ordinarily, if the deceased does not own a dwelling at their death then no RNRB is available. However, the government recognised the need to preserve the availability of the RNRB for those who sell homes to fund care home fees, in circumstances where the former home would have qualified for the RNRB had it remained in the person’s estate and their direct descendants would have inherited at least part of the estate. This is commonly referred to as downsizing relief.

Accordingly, if you decide to sell your mother’s home in future to release enough funds for her continued care, provided all the necessary conditions are met on her death it is possible that her estate will still benefit from this potentially valuable tax relief.

There is no time limit between the sale and the date of death, and you do not have to tell HMRC when the sale occurs. Your mother’s executors must make the claim for RNRB and any downsizing relief when completing the inheritance tax returns after she dies.

Alternatively the property could be rented out and any rental income used to fund her care home fees, particularly if your family would prefer to keep the property for a period. In the current climate when house prices are unstable, renting her property to generate a steady source of income to pay for care could be an attractive option.

However, there are practical costs and considerations of doing so: for instance, ensuring that maintenance costs are available or that all legal requirements — such as registering the tenancy deposit — are complied with.

Importantly, any rental income generated is taxable. You need to consider whether receiving this would push your mother into a higher income tax bracket. This also may mean that there is less money in the pot to cover expenses and so on.

Regrettably there is no straightforward solution and you and your siblings should consider your mother’s circumstances in the round before taking action. While your mother comfortably has funds to pay for her care in the short term, considering the legal and financial ramifications now with professional advice could clarify concerns in the long term.

Angharad Lynn, senior associate in the private client team at VWV solicitors, says the first question is whether your mother has the capacity to make this decision herself. You say she has decided to move to a nursing home, which suggests that she does have capacity. If so, this must be your mother’s decision.

If your mother lacks capacity has she made lasting powers of attorney (LPAs) appointing you or your siblings to act in relation to her financial affairs? If not, no one has the legal capacity to deal with her financial affairs and you will need to apply to the Court of Protection for a deputyship order.

If your mother has made an LPA for financial affairs, and she lacks capacity, then one of the decisions her attorneys can make is whether to sell her house, as long as there are no restrictions in the LPA preventing this. If there is an LPA, check it and ensure that it has been registered with the Office of the Public Guardian.

You have not said where the property is located or what condition it is in, as these factors will make a difference to whether it is better to let it out or keep it. If none of you is likely to want to keep the property in the long term, it may be more efficient to sell it now and invest the proceeds. Your mother will pay income at her marginal rate on the rental income or the savings income. Tax on dividends is lower than that on rental income so that is one consideration.

Your mother’s estate is worth roughly £740,000. If she is a widow, then assuming she has inherited your father’s entire estate, and he had not made any significant lifetime gifts, there should not be any inheritance tax to pay on her death.

Her estate will benefit from her own nil rate band of £325,000, your father’s nil rate band and the excess of the estate will benefit from the residence nil rate band, which is the additional allowance of £175,000 when the deceased is leaving property to their children. Your mother does not actually need to own the property at the date of her death to benefit from this allowance, as downsizing relief is available.

If your mother does not qualify for your father’s allowance, either because she is divorced or because he used up his and she only has her own allowances, she should (assuming she has not made substantial lifetime gifts) benefit from a £500,000 tax-free allowance on death.

If she has capacity, and is looking at an inheritance tax bill on the excess above this amount, she could decide to make lifetime gifts to you now to reduce her estate to a level at which inheritance tax will not be payable. However, unless she lives for more than seven years afterwards, these lifetime gifts will be brought back into the estate to be assessed for inheritance tax. She should also ensure that she retains sufficient assets to pay for a possible rise in care home fees. If she does not, and is assessed by the local authority for fees, she could fall foul of the deprivation of assets rules.

If she does not have capacity you should not make large gifts to yourselves under either the LPA or a deputyship order.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to money@ft.com