Tax relief on nursing home care bills

My dad is approved for the Fair Deal scheme for our mum. I see you can claim tax relief on the portion that is paid by him but he’s a pensioner so I’m assuming there’s no benefit there? Can we/I pay and claim the relief as I’m PAYE on the higher tax bracket?

Mr M McA

Your father’s case is an illustration of just why Fair Deal can be so useful to people. As a pensioner on presumably limited income, he would struggle to secure the care he needs for your mum. Private nursing home costs would be out of reach and it can be very difficult to get a public nursing home bed because they are very limited in number – certainly compared to the demand.

It’s unclear whether your father’s income is limited to the State pension or whether he has additional private pension or investment income, but I am assuming from your question that it is just the State pension on the basis of your suggestion that he would get no benefit from any tax relief.

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The rules of Fair Deal states that, as a couple, the contribution for either of your parents under Fair Deal is 40 per cent of their combined income. That is income from all sources – earnings, pensions or other welfare payments, rental income, investment income and interest on bank savings, if any.

From this, they can deduct any income tax of universal social charge that they may pay, as well as anything they pay in mortgage interest or rent, the local property tax and any other levies they are obliged by law to pay, any health expenses and loans taken out to buy, repair or improve an asset.

Less relevant to most people but also deductible are income from any qualifying redress scheme, maintenance payments and the cost of dependent children in full-time education. If relevant – and it isn’t for people like your dad who are over the age of 66 – they can also deduct PRSI.

They are also liable to pay 3.75 per cent of the capital value of savings, shares, land or other assets – including, for instance, an approved retirement fund used by people to keep their pension fund invested after retirement – in excess of a threshold of €72,000.

Finally, they pay 3.75 per cent of the value of the family home, if they own it, for the first three years of care, though this bill can be covered by a nursing home loan and will not fall due until the property is sold or the last of your parents dies.

In a situation where people have only State pension income and very little assets, Fair Deal is clearly an excellent option as the State is subventing close to €1,000 a week in care costs for your mum’s care, or possibly more if in Dublin. However, a recent trend by private nursing homes to charge weekly “premiums” over the Fair Deal rate can create real financial difficulties for older people who are generally on more limited incomes.

The presumption in all this is that the person assessed under Fair Deal – or their partner – is footing the bill for care but that is not necessarily always the case, especially where income is limited or a couple’s financial capacity is tied up in illiquid assets, or where these weekly premiums are pushing available income below subsistence levels.

And this is where the rules on tax relief can help out.

If you choose to pay the amount your father is liable to contribute then you will be able to claim it back against your own tax bill at the 40 per cent rate given you are a higher rate taxpayer

In most cases, health expenses can secure tax relief at the standard 20 per cent rate. However, a specific exception is made for the cost of care – either in the home or in long-term nursing home care. In relation to nursing home care, the relief is granted at a person’s highest or marginal rate of tax. So, if your dad was paying income tax at the 40 per cent rate, he could claim against that – at least until the 40 per cent band is fully used up with any further relief granted at the lower rate.

In this case, of course, that is of little use as your father has little or no exposure to income tax at all, given his income.

The good news is that in their Tax and Duty Manual on the subject of health expenses, the Revenue Commissioners say that under Section 469(2)(b) of the Taxes Consolidation Act 1997, “individuals who avail of financial support under the Fair Deal Scheme may claim income tax relief in respect of any contributions paid for nursing home care based on their own income and assets”.

More importantly, it adds that “if the contribution is paid by another individual (such as a relative), that individual will be entitled to relief instead”. So if you choose to pay the amount your father is liable to contribute then you will be able to claim it back against your own tax bill at the 40 per cent rate given you are a higher rate taxpayer.

Of course, the sum you are paying is effectively a gift to your parents as you are paying a bill for which they are liable but, given the sums that appear to be in play here, it seems unlikely you will run into issues with the capital acquisitions tax regime.

Finally, and obviously, any cost of care covered by the HSE clearly will not qualify for tax relief.

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. This column is a reader service and is not intended to replace professional advice