Clarity on Nursing Home Tax Relief ?

Hi all,

I'm trying to get my head around how tax relief on nursing home fees actually works out ... my own accountant doesn't seem to be that clear on it and most of the info on-line seems contradictory. I'd very much appreciate if any of you in a similar situation could clear this up for me.

I'll keep it as simple as I can.

My parents gross income is approx 90,000 between them;

€70,000 from a Rental Property.
€20,000 Pensions.

€75,000 Net approx after expenses.

Out of this, €41,000 pays for the cost of my Dad's care (He is now resident full time in a nursing home).

They are both aged over 70, married etc. Up to now, they have been paying tax at the standard rate - 20%.

So how does tax relief work on the 41,000?

Is it effectively 20% of the 41,000 = 8,200 - and therefore their tax bill is reduced by 8,200 via the Med1 form?

Or is 41,000 deducted from the 75000 net income, and tax calculated on the balance - 34000?

I doubt it's that simple! ???

Any advice much appreciated.

phenomenon said:

Hi all,

I'm trying to get my head around how tax relief on nursing home fees actually works out ... my own accountant doesn't seem to be that clear on it and most of the info on-line seems contradictory. I'd very much appreciate if any of you in a similar situation could clear this up for me.

I'll keep it as simple as I can.

My parents gross income is approx 90,000 between them;

€70,000 from a Rental Property.
€20,000 Pensions.

€75,000 Net approx after expenses.

Out of this, €41,000 pays for the cost of my Dad's care (He is now resident full time in a nursing home).

They are both aged over 70, married etc. Up to now, they have been paying tax at the standard rate - 20%.

So how does tax relief work on the 41,000?

Is it effectively 20% of the 41,000 = 8,200 - and therefore their tax bill is reduced by 8,200 via the Med1 form?

Or is 41,000 deducted from the 75000 net income, and tax calculated on the balance - 34000?

I doubt it's that simple! ???

Any advice much appreciated.

Click to expand...

The relief for nursing home fees is available at the marginal rate of tax. See para. 14, page 10 of this [broken link removed]. I don't think much of their accountant TBH! If they have that level of rental income they should be filing a form 11, and medical expenses returned there. The correct relief will be applied if the return is filled in correctly.

Thanks for getting back to me mandelbrot...

I've had a look through that document;

It states:
"Relief in respect of qualifying nursing home expenditure will be allowed at an individual’s marginal rate of tax.
If the expenditure incurred includes nursing home fees that portion of the expenses will continue to be allowed at an individual’s marginal rate of tax and the balance will be allowed at the standard rate of tax."


As they only pay tax at the standard rate, can they still avail of relief on the cost of nursing home care @ 41% ? or would just be applied @ 20%.

Also, am I right in thinking that the actual amount of relief, i.e the reduction in their tax bill, is a straight forward calculation:

either: 41000 x 20% = 8200 (8200 knocked off the tax bill)
or 41000 x 41% = 16810 (16810 knocked off the tax bill?)

depending obviously on what rate they can avail of...


Thank you for your help on this!

Effectively their 75k income is reduced to 34k by the nursing home fees. At 75k of income they'd be paying some tax at 41%, so they get some relief at 41% and the rest at 20%.

This thread inspired me to do a Key Post on the topic.

http://www.askaboutmoney.com/showthread.php?t=173961

Brendan

Many thanks to you both.

Unfortunately still a little confused here - effectively it looks as if there are two ways of doing this, either use the Form 11 to file their return, subtract the 41,000 from the net income and work out the tax on the balance (straight forward enough), or use the Med 1 to claim a tax refund after tax is paid.


Scenario 1 (Form 11)
75000 – 41000 = 34,000.
Standard Rate cut off for married couple = 41800.

Tax on 34000 @ 20% = 6800.


Scenario 2 (Med 1 Tax Refund)
75,000

41800 x 20% = 8360 (standard rate cut off fo rmarried couple)
Balance @ 41% = 13612

Total tax 21,972.
Refund on 41,000 Nursing home fee: 16810 ?

How is the Med1 Calculation done?
If you pay even 1 euro of your income tax at 41% - are you entitled to claim 41% of the entire amount spent on the nursing home fees or is it worked out pro rata (as i imagine it would be).

If the taxpayers involved are self assessed then the Med1 is not the correct method to obtain the relief - Panels 535 - 540 on the 2011 Form 11 are the relevant panels for claiming the relief. Or if completing the return on ROS offline / ROS online, then there will be an area on one of the tabs (possibly under "credits, reliefs & deductions" or similar).

To answer your question how is the Med1 calculation done - the tax liability is calculated without the relief, so to use the figure in your example the liability would be 21,972. Then the liability is calculated applying the relief, so the liability ends up as 6,800. On the face of the assessment you may see either the total income being reduced to 34,000 by the amount of the medical expenses, OR you'll see tax being calculated on the full income (so in your example 21,972) and then a credit of 15,172 (21,972 - 6,800) being given for medical expenses, but either way the end result is the same. Which of them it is depends on what way the legislation describes the relief (as a deduction or a credit), but really that's totally irrelevant to you, unless you are developing a passion for minutiae!

That all makes sense! Many thanks!