Does the Fair Deal Scheme incentivise people to keep houses empty?

Is the following correct? (I am using round figures but just want to establish the principle)

Assumptions:

Gross pension €50k
Net pension €40k
Marginal tax rate: 40%
Value of home: €400k
Rental profit – say €24k
Net rent after tax - €14k



So, if you rent out the house, you will get a net benefit of €3k, which is absolutely not worth the hassle. Much better to leave it empty.

If you sell the house, you are no better or worse off for the first three years. But after three years, you would be much worse off if you had sold the house, as you will continue to pay 7.5% of the value of your savings. But if you hold onto the house, the contribution is limited to three years.

Brendan

Sadly you're right and figures are a great example of why there's quite an amount of black market letting going on. It's being done by family members of mum/dad in most cases. To be honest it's hard to blame them as it's wide open to exploit. Would it not be better if the home owner was incentivised to downsize when they reach a certain age with home help as part of the deal. There's so many ways to improve on Fair Deal, because at the moment there's an awful lot of "fiddling" taking place, not just the letting aspect. It's like musical chairs with property and cash/assets to avail of the Fair Deal. Maybe not what a certain cohort want to hear, no doubt they'll deny such a statement but it is what it is. Time for people to start paying for things in this country and throw the entitlement mindset out the door.

@brendan - yes is the answer.

Yes, the current system massively disfavours renting (you are getting 20% only of the net profit after tax for taking all of the risk and cost/hassle) and also any sale of the house (so as to put it back into the market and allow another family/occupier to enjoy it). Along the way, that system also creates wasted costs of insurance (far more expensive to insure an unoccupied property), dereliction, black market lettings and vacancy. I say this as someone who had a vacant property for over ten years three doors down at the end of our terrace which was gradually falling into dilapidation. A particularly enjoyable moment was when the overgrown back garden became a nest for rats and other vermin.

The reality is that pushing families of people in nursing homes into becoming reluctant landlords should only be a 'least worst' plan B solution. People going into nursing homes should have a one-off opportunity to sell their home (say within a year of going into long term care), benefit fully from PPR CGT relief and also benefit from the three year cap. That would create some urgency around the decision of putting houses back into use.

Current government are doing something on this but it's been well known for years, overdue and we'll only see changes in the housing market years from when any changes are implemented.

As already mentioned, the answer to the question posed in the thread title is "yes". Been through this myself recently and the house (3 bed in a prime location c. 5km from the city centre) has been lying idle without paying tenants or even extended family members who could've used it for several years. Now going to probate. The Fair Deal scheme has a lot of unintended negative consequences. But I definitely wouldn't underestimate the emotional arguments that will be made against logical changes that might treat the home as an asset rather than a family heirloom and legacy!

I'm not convinced this is as big an issue as some make out.

I've had three elderly family members go into a nursing home down the years.

In all cases the Fair Deal incentives didn't really play a part in the decision to leave the house empty.

The family (for emotional reasons) just didn't want to clear the house out with the owner still alive

To make a house ready for sale or the letting market you have to discard a lifetime's possessions and no one was really ready for that.

Undoubtedly yes. Family member had a 2 bed apt close to Dublin city centre. Were they to rent it out they would be risking a non paying tenant & the wear and tear of fixtures/fittings/appliances for a 20% return of the rent paid.

Given that it was an apartment, they felt it wouldn't deteriorate as much as a house - were it to be left unoccupied. Exterior fabric would be fine and neighbouring units (above/below/either side) would provide some level of heat.

I absolutely agree it makes little sense for many reasons to rent the house. It is worth pointing out though some of the costs incurred to leave a house empty.

We cancelled bins, landline, cable tv / licence etc, LPT exemption was applied for and granted. The garden was done by family.

The main expenses then were gas and electricity for standing charges and to keep some heat on in the winter months and lights on timers. Unoccupied house insurance was €700 - €800 annually, alarm monitoring was around €600 annually. Typically it was costing us around €3,000 a year to leave a house empty. If repairs or maintenance were needed that would be additional cost.

If your relation has no savings, these bills still have to be paid until the house is sold, the alternative is to let the house devalue by falling into disrepair.

twofor1 said:

Unoccupied house insurance was €700 - €800 annually, alarm monitoring was around €600 annually. Typically it was costing us around €3,000 a year to leave a house empty.

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You were spending >€100 a month on heat and light for an empty house?

NoRegretsCoyote said:

You were spending >€100 a month on heat and light for an empty house?

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Yeah, a 1950’s semi, the biggest cost being the very inefficient 1990’s gas boiler.

Even with an €800 insurance premium, cover for water damage was not available on an unoccupied house. So heating came on for an hour in the morning, evening, and night on a timer and thermostat for winter months.

A few lights were also on timers all year around at different times.

twofor1 said:

Typically it was costing us around €3,000 a year to leave a house empty

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Which is why a family member often moves in as caretaker.

Indeed, I know of a few such casual arrangements.

Thirsty said:

Which is why a family member often moves in as caretaker.

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For many reasons that's not always possible. I felt "Twofor1" outlined a typical situation that a lot of families find themselves in.

NoRegretsCoyote said:

I'm not convinced this is as big an issue as some make out.

I've had three elderly family members go into a nursing home down the years.

In all cases the Fair Deal incentives didn't really play a part in the decision to leave the house empty.

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In our case it definitely was.
Keeping the house left open the possibility of it being discounted from the "means test" after three years (never came to that in the end unfortunately).
Selling it would have meant that her pot of cash savings would continue to be assessed in full even after three years.
No brainer to retain the house and keep it vacant.
Renting it on the sly or having somebody move in on the sly as a caretaker was never considered.
Maybe myself and my siblings are too honest/naive?

ClubMan said:

having somebody move in on the sly as a caretaker was never considered.

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I don't think there are any repercussions if you have someone living in the house on a caretaker basis rent free. You could very reasonably expect them to pay all bills, contents insurance, and minor repairs too.

It's not just that Fair Deal doesn't incentivise people to rent, the whole rules and regulations around being a landlord doesn't incentivise anyone to become a reluctant landlord. Trying to dispose of a house with sitting tennants under probate after the inevitable isn't worth the hassle for most people.

I'm likely to be facing this decision in the next 6-12 months. For us, as all of the kids live 2 hr+ from home, we'll keep the house vacant and use it as our base when visiting.

Excellent information from the CSO here about vacant propertied nationally.
According to the 2016 Census there were 4165 properties nationally which were vacant because their owner was in a nursing home. That's about €1.1 billion worth of houses. In total there were 183,000 vacant properties, excluding holiday homes.

It's 4,165 out of 57,276 vacant dwellings where a reason for the vacancy was given

For the other 126,066, no reason was given. I think it's safe to assume that some of them were also because the owner was in a nursing home

Regarding the "Family member" moving into the property I seem to remember when we did this that the person is supposed to be an immediate family member of the policy holder like son or daughter maybe nieces and nephews but your second cousin twice removed doesn't count as a Family member

This recent article suggests there could be up to 9,300 unoccupied homes as a result of their owners being in nursing homes under Fair Deal.

Presumably there are additional unoccupied homes owned by persons in nursing homes paying privately.