I came across a query you had last year surrounding the legality of claiming tax back for nursing home fees paid by your father for your mother’s care. Your father pays these costs, and you, carrying the receipt under your name, secure the tax relief on his behalf. You’re unsure if this might land you in bother or even be countenanced as illegal activity.
This concern is valid given the substantial cost of nursing home fees in Ireland. The significance of the tax relief available on these payments to the person footing the bill cannot be overstated. But, true to your suspicion, specific regulations dictate who qualifies for this relief.
It’s rather uncomplicated. The individual responsible for the outlay is entitled to claim the relief. What makes this relief unique in comparison with many others is it can be claimed at the highest tax rate of the person. Conventionally, tax reliefs are permitted only at the standard income tax rate of 20 per cent.
In cases where nursing home occupants with considerable assets but reduced income must bear these costs, this could prove problematic. It limits their capacity to take full advantage of the tax relief at their disposal. Private nursing homes in Dublin, for instance, demand a monthly fee in the region of €7,000. Few elderly individuals have adequate income to counterbalance the available relief.
The scenario often unfolds such that a relative undertakes the responsibility of making these payments when residents have assets that aren’t readily convertible to cash. This appears to be the case in your situation.
The matter that arises is determining who is genuinely paying this invoice and, to be precise, who is seeking the tax relief.
You indicate your father is making upfront payments, and you are procuring tax relief on his account, with the receipt carrying your name?
While I’m not claiming such situations are impossible, they’re probable, especially in light of the higher rate relief available. Nevertheless, it significantly raises eyebrows.
Ideally, if your father is making the payments, the receipts should feature his name, and he should be the one to claim any tax relief – either personally or via an authorised person – against his earnings. Should you be the one claiming the relief on your earnings while not making the payments, this could put you in hot water with the Revenue Commissioners.
You may only reply against your expenditures, and it does not entitle you or any family member to unofficially switch simply because your father lacks enough income to maximise the relief. The person who pays the bill must be the one requesting the relief.
When you say that you’re claiming the tax on his behalf, does this imply that you’re handing over the amount of relief obtained to him? The Revenue may interpret this as a monetary gift to your father, and if it exceeds €3,000 yearly, it might render him liable to potential capital acquisition tax.
Would the Revenue pursue individuals related to such matters?
It’s not certain, however, due to the growing aged population and an increase in people taking advantage of such assistance, it isn’t far-fetched to assume they may review this area. Also, procuring valid evidence to justify claiming the relief can prove challenging if the bill payment funds originate from your father’s account, especially if they begin to probe.
What happens next? They could allege fraudulent activity. This might be unlikely unless they want to establish an example. However, they can reclaim any dishonestly claimed relief, definitely incorporating financial penalties and interest atop of the frustration of a Revenue audit.
If any family member finds it difficult to fully cover the cost of care, including the available relief, a feasible alternative is for several members to contribute. Each member can then claim relief proportional to the amount they have paid.
Most people are less concerned about fees because they are eligible for state financial aid through the Fair Deal scheme accepted by the majority of private nursing homes.
The keyword here is “almost”, hence, for those contemplating long-term nursing home care for themselves or their family members, it’s crucial to confirm with the nursing homes under consideration. Even though most nursing homes that don’t accept the Fair Deal are usually transparent about it, it’s safer to double-check.
Why would a care home reject a governmental monetary boost? It appears there’s a common dissatisfaction within the industry with the amount the government is willing to cover. Care home managers argue that the rates have failed to increase in line with the quick inflation of costs in areas like energy, insurance, and labour.
A widely accepted principle for those who do accept is that the resident has to pay 80% of their personal income towards the cost of their care. If they are part of a couple, this figure drops to 40% of the family income. Additionally, any assets above a threshold of €36,000 must contribute 7.5% each year during their residency. This threshold is doubled for those with a spouse or partner to €72,000.
For those who are considering strategies to reduce tax burden, it’s important to note that ‘Fair Deal’ will include any assets sold in the five years leading up to the application in their calculations.
The issue of the family home often stirs controversy. Not because of any wrongdoing, but mainly due to the emotional attachment families have to this asset. The 7.5% individual annual contribution to the cost of care does incorporate the family home’s value. However, the cost set against the family home has a three-year, or 22.5%, cap of its value. Once more, these percentages are split in half to 3.75% and 11.25% if the partner or spouse is alive.
Given high property costs, most people don’t usually have adequate funds at their disposal, hence they can apply for something referred to as a ‘Nursing Home’ loan to cover this amount. The loan can be reimbursed either from the property sale or posthumously from the person’s estate, subject to the guidelines.
Since February, every resident in a care home can retain the total income if their empty home is rented out. It will not influence the 80% income assessment for care costs.
The national housing issue has proven advantageous in this matter. Previously, all rental income was considered hence most properties remained occupied. Later, the government allowed residents to keep 60% of the rental revenue in an effort to incentivise care home residents or their families to rent these vacant properties, contributing to easing the housing demand.
Presently, the entirety of their earnings can be retained. The key point here is that the cost of residential care in nursing homes is high. This proves particularly difficult for those who do not meet the Fair Deal eligibility criteria, mainly due to the worth of their possessions, or for those who choose not to proceed with the scheme. It’s not straightforward to find close to €85,000 each year.
Yet, the fundamental principles of tax relief remain in effect: you must be the one footing the bills if you wish to reap the benefits of the relief. Moreover, if Revenue deems it necessary to perform an audit, you should be prepared to explain the origin and allocations of the funds.