I was reading an article you wrote last year about nursing home fees. My Dad pays my Mum’s nursing home. I get the receipt in my name and claim tax back for him. Could I get into trouble? Is this illegal?
Ms J.P.
Nursing home fees in Ireland are eye-watering, at least if you are footing the bill. That’s why the tax relief available on such payments is important. But, as you suspect, there are rules about whom is entitled to what.
It is quite straightforward really. Whoever pays the bill can claim the relief. What sets the relief available against nursing home fees apart from most other reliefs is that it can be claimed at a person’s highest rate of tax. In general, tax reliefs are allowable only at the 20 per cent standard income tax rate.
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That can be an issue where asset-rich nursing home residents are paying the costs at a time when they have limited income and therefore limited opportunity to maximise the tax relief that is available to them. Private nursing homes, at least in Dublin, are charging around €7,000 a month in fees. Not many people of that age are making anything like enough in income to offset the available relief against.
What often happens then, as with residents who may have assets but not ones that are easily cashed in, is that another family member takes responsibility for paying the bills. And that looks to be what has happened here.
The question then is who is actually paying this bill or, more accurately, who is claiming the relief.
You say your Dad is paying the bills upfront but you are claiming tax back for him? And the receipt is in your name?
I’m not saying that never happens. I have no doubt that it does – especially given the higher rate relief available. However, it does set some alarm bells ringing.
If your Dad pays the bills, the receipts should be in his name. And any tax relief claimed would be claimed by him – or on his behalf – against his income. If you are claiming the relief against your income but are not paying the bills, you could find yourself in trouble with the Revenue Commissioners.
You can only claim relief against your outgoings. And just because your Dad does not have sufficient income to maximise the relief does not entitle you or any other family member to do an informal switch. If you are going to be claiming the relief, then it needs to be you who is footing the bill in the first place.
And when you say, you are claiming the tax for him, does this mean that you are giving him the amount of relief secured? If so, it could be seen by Revenue as money you are gifting to your father and, if over €3,000 in a year which it would surely be, it would leave him open to potential capital acquisition tax liability.
Will Revenue come after people for this sort of thing?
I cannot say but it is not unreasonable to think that, with an ageing population and more people availing of such care, it would be an area that they might consider worthy of review. And if they did start asking questions, you would find it difficult to produce a paper trail that justifies claiming the relief if the funds for the bills are coming out of your Dad’s account.
What then? It would be open to them to consider fraud charges. Unless they were looking to set precedent, that would be unlikely. However, they would be able to claw back any relief claimed by you fraudulently and would surely add interest and financial penalties on top. And that’s on top of the sheer bureaucratic nightmare that is a Revenue audit.
An alternative for families where any individual would struggle to meet the full cost of care, even with the available relief, is for several members to contribute. Each can then claim relief in relation to the sums they themselves have paid.
Of course, for most people, fees are less of an issue. That is because they will qualify for State financial support under what is called the Fair Deal scheme which almost all private sector nursing homes will accept.
Almost is the critical word here, so for those who are weighing up long-term nursing home care for themselves or their loved ones, do make sure you check with the nursing homes you are considering. Most who do not accept Fair Deal are very upfront about it but just in case.
And why would a nursing home not accept a State financial subsidy? There is widespread discontent in the sector at the level the State will pay. Nursing homeowners argue that rates have not risen to take account of rapidly rising costs in areas such as energy, insurance and labour.
For those that do, the general rule of thumb is that the resident contributes 80 per cent of their income to their cost of care. If they are one half of a couple, that figure falls to 40 per cent of the family income. On top of that, they are required to contribute 7.5 per cent of any assets they hold above a value of €36,000 in each year when they are resident. Again this figure doubles to €72,000 for those who have a spouse or partner.
And for anyone who might be considering some tax planning, Fair Deal will include in that calculation any assets disposed of in the five years before an application.
What is generally controversial here is the family home. Not controversial in the sense of anything wrong being done but it is the area that generally proves most sensitive to families.
The 7.5 per cent annual contribution to the cost of care does include the value of the family home. However, the charge against the family home is capped at three years – or 22.5 per cent of its value. Once again, those figures are halved to 3.75 per cent and 11.25 per cent where a partner or spouse is still alive.
Obviously, given property prices, most people would not necessarily have that sort of money lying around so people can avail of something called a Nursing Home loan to pay that sum. The money is then reclaimed from the person’s estate when they die or when the property is sold, and there are various rules around that.
Since February, any nursing home resident renting out their vacant home will be able to keep all of the income they earn from it. It will not be taken into account when assessing your 80 per cent income contribution.
The wider housing crisis has been good news in this regard. It used to be the case that all rental income was taken into consideration – and as a result, homes were left vacant. Then the Government changed the rules to allow people retain 60 per cent of rental income in an effort to incentivise nursing home residents or their family to put these homes on the market and increase resources available to people looking to rent homes.
Now, they can keep all that income.
The bottom line is that nursing home care is expensive and, certainly for those who do not qualify for Fair Deal – mainly because of the value of their assets – or chose not to pursue that route, finding the guts of €85,000 a year is no easy ask.
But the basic rules of tax relief still apply: if you want to claim the relief, it had better be you who is paying the bills. And you would want to be comfortable that you can show Revenue where the money is coming from and going to if they decide to enquire.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice
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