Key Post Explaining the Fair Deal Scheme

[Brendan Burgess]

The purpose of this thread is to understand the financial aspects of the Fair Deal Scheme and the Nursing Home Loan Scheme. It is not to discuss whether it is fair or not or what changes should be made. Please discuss these in another thread.

Only reply to this thread to correct it or to ask a question about the scheme.

Terminology:
The Fair Deal Scheme is the scheme by which the state contributes towards the cost of nursing home care
The Nursing Homes Support Scheme - the official name of the Fair Deal Scheme
The Nursing Home Loan is the scheme whereby the HSE lends money to people secured on their family home.
Ancillary State Support: the official name for the Nursing Home Loan
State Support: The weekly amount paid by the HSE towards a person's care

The first three years for which the resident is in the nursing home
It is important to note that this is the first three years in the nursing home, and not the first three years in the Fair Deal Scheme.

A person must pay 80% of their net income towards the cost of the nursing home.

They must pay 7.5% of their total assets (home and savings) in excess of €36,000


Deirdre gets no state support as her means total €77,000 which exceeds the cost of the nursing home care. She just pays the actual cost of €60,000.

Eddie gets no state support as his means total €77,000 which exceeds the cost of the nursing home care. He just pays the actual cost of €60,000.

After Year Three, the family home is ignored in the calculations

They pay 80% of their net income and 7.5% of their savings in excess of €36,000.

So after Year Three, Charlie and Deirdre get state support, but Eddie does not.

 

[Brendan Burgess]

The Nursing Home Loan is an optional scheme

Let's look again at Deirde's first three years in more detail

As Deirdre's means are €70,000 a year, the HSE will make no state contribution towards her care.

So she will pay the full cost of care herself. She has three ways of doing this.
1) She can run down her savings of €136,000
2) She can ask someone else to pay them on her behalf. If her son pays her nursing home fees, he can claim tax-relief on the payment.
3) She can get a loan from the HSE for the bit relating to the house

So the HSE will lend her €20,500 and when she dies, they will recover this from the estate.

A common misconception :"She will pay 7.5% of the value of her home towards her nursing home fees."

No, she will pay the full fees of €60,000 herself. The HSE will lend her up to 7.5% of the value of her home, but in this case she needs a lot less to meet the full cost.

 

[Brendan Burgess]

Let's look at different scenarios for Charlie

In the original example, Charlie's nursing home cost €60,000 and the State Support was €5,500

If Charlie chooses a nursing home which costs €70,000, it won't cost him anything extra. The State Support will be increased to €15,500

If he finds a nursing home which costs €50,000, he will get no state support. But he will pay the full €50,000 himself.

Where the nursing home costs €60,000, Charlie will have to pay the €32,000 from his income and the €7,500 from his savings himself.

He will have to pay the €15,000 which is 7.5% of the value of his house himself, but has three ways to finance it:

1) He can pay it out of his savings.
2) His daughter can pay it and get tax relief on it at her top rate
3) He can avail of the nursing home loan scheme.

Brendan

 

[Brendan Burgess]

Tax relief on nursing home fees
Whoever pays the nursing home fees can claim tax relief at their top rate.
In most cases, the resident pays it themselves.
But if a son pays the fees on their mother's behalf, the son can claim tax relief on the fees.
If a friend pays, the friend can claim.
Only the person paying can claim. So the son can't claim if the mother pays.

A resident's tax return will look something like the following:
Income: €40,000
Less nursing home fees paid: €60,000
Taxable: nil

So it often makes sense for someone else to pay to get the tax relief at 40%.



Should Charlie and Deirdre avail of the Nursing Home Loan?

If Deirdre avails of the loan scheme, she will still pay the €20,500 although the HSE will lend it to her.

But if her son pays it on her behalf, he will be able to get tax relief at 40% on it, assuming he is a higher rate tax payer.

So the real cost to him will be only €12,000 while his mother will be €20,000 better off.

So the family benefits by €8,000 a year.

 

[Brendan Burgess]

How it works for couples

The principles are the same, but the numbers are pro-rated
The couple can pay 40% of their joint income instead of the 80% for a single person.
They pay 3.75% of their assets above €72,000, rather than 7.5% of a single person's assets above €36,000

I have extracted the sections relating to couples onto the attached document.

Here is the example they use, given in tabular form and annualised.

 

[Brendan Burgess]

Links and Frequently Asked Questions

Funding Nursing Home Care: Fair Deal – The Basics


HSE FAQ

If my income is €100,000 do I pay 80% or €80,000 for the nursing home?
No, you pay the actual cost of the nursing home, typically €60,000.

The only relevance of your income is that the HSE will not make any contribution.

Can I sell my house?
Yes, but you would be crazy to do so.

If you keep your house, it is ignored after three years.

If you sell it, you will continue paying 7.5% of the proceeds for as long as you stay in the home.

 

[Slim]

Good thread Brendan. In post #3 , it reads "If Deirdre avails of the loan scheme, she will still pay the €20,500 although the HSE will lend it to her." Is the amount that the HSE will (need to) lend in this year not just €15,000, i.e 7.5% of €200k?

 

[Andarma]

Bottom of #1 states:

So after Year Three, Charlie and Eddie get state support, but Eddie does not.

I presume you meant to say 'Charlie and Deirdre get state support'?

It would be helpful to see an example of someone who has a low-value house located outside a Rent Pressure Zone and which requires significant investment to rent out.

Post #3:

'In most cases, the elderly person pays it themselves.'

The person may not be 'elderly' at all. What is the definition of 'elderly'? Can the person in the nursing home claim tax relief themselves for the fees they pay?

 

[Early Riser]

Very clear and helpful table. Would it be useful to make reference to the impact on the calculations of a spouse resident in the family home? Or would this over-complicate things ?

 

[Brendan Burgess]

Good thread Brendan. In post #3 , it reads "If Deirdre avails of the loan scheme, she will still pay the €20,500 although the HSE will lend it to her." Is the amount that the HSE will (need to) lend in this year not just €15,000, i.e 7.5% of €200k?

Hi Slim

Deirdre's house is worth €500k. It was Charlie's house which was €200k.

When I next edit the table, I will highlight the differences between the different cases.

7.5% of €500k is €37,500 , but she will be contributing only €20,500 based on the value of the house.

Brendan

 

[110quests]

So in #1, Deirdre's contribution of income 80% and savings 7.5% totals 39,500 giving shortfall of 20,500 towards 60,000 costs. Either Deirdre pays this through applying for Nursing home loan or from her savings ?

 

[Brendan Burgess]

Bottom of #1 states:

So after Year Three, Charlie and Eddie get state support, but Eddie does not.

I presume you meant to say 'Charlie and Deirdre get state support'?

Thanks - fixed now.

It would be helpful to see an example of someone who has a low-value house located outside a Rent Pressure Zone and which requires significant investment to rent out.

I have tried to cover the main cases, while keeping it simple enough to read and understand. I can't cover every case. For example, I have not referred to couples at all.

But now that I have outlined the format and have clarified the rules, feel free to start a new thread covering other cases not included.

Post #3:

'In most cases, the elderly person pays it themselves.'

The person may not be 'elderly' at all. What is the definition of 'elderly'?

Good point. I have changed it to resident.

Can the person in the nursing home claim tax relief themselves for the fees they pay?

Yes. I have covered that in Post 3

Whoever pays the nursing home fees can claim tax relief at their top rate.
In most cases, the resident pays it themselves.

 

[Brendan Burgess]

Would it be useful to make reference to the impact on the calculations of a spouse resident in the family home? Or would this over-complicate things ?

Hi Early Riser

I think it would be useful. I might have a go at it at some stage. I spent so much time trying to understand this and lay it out in a meaningful way, that it might be some time before I get to the couple situation.

Brendan

 

[Brendan Burgess]

So in #1, Deirdre's contribution of income 80% and savings 7.5% totals 39,500 giving shortfall of 20,500 towards 60,000 costs. Either Deirdre pays this through applying for Nursing home loan or from her savings ?

Yes, I might do another post to look at Deirdre in more detail as the numbers are a bit confusing.

She can pay it herself from her savings.
Her children can pay it on her behalf
Or she can get it through the Nursing Home Loan scheme.

Brendan

 

[Brendan Burgess]

Would it be useful to make reference to the impact on the calculations of a spouse resident in the family home?

Hi Early Riser

I have inserted an example of this here:

https://www.askaboutmoney.com/threads/explaining-the-fair-deal-scheme.204754/#post-1526969

 

[Slim]

Hi Slim

Deirdre's house is worth €500k. It was Charlie's house which was €200k.

When I next edit the table, I will highlight the differences between the different cases.

7.5% of €500k is €37,500 , but she will be contributing only €20,500 based on the value of the house.

Brendan

Thanks Brendan. I‘ve been off air for a few days. It seems post #3 is different now so l think it must be sorted. While l think it‘s a good thread, there seems to be 4 on the Fair Deal scheme now including twofor1's excellent thread started 28/7.

 

[Brendan Burgess]

It's a complicated scheme.

This one explains the numbers
two for one explains the admin
The other one explains the strategy - rent or sell?

Then the fourth one is the one on what the government policy should be.

Brendan

 

[Barnerd]

Hi Brendan
Thanks for the info.
I am baffled by the net income and the tax relief.
If my father's gross income is €60,000 then his net income is about €40,000.
If he pays the full nursing home fee of e.g. €70,000 the extra tax relief will mean his net income increases. No?
So which net income figure is used for the purposes of the calculations above?

I'm totally lost on this one.

 

[Slim]

Hi Barnerd,
This comes down to a matter of timing. If your father pays all the NH fees, €70k, then he is not receiving any Fair Deal assistance. This suggests his assets are too high to get assistance but the application is valid as the 3 years on the PPR asset run from the date of application/approval, even if he receives no assistance. So, in 2017, he pays €70k and makes an application to Revenue for tax relief. Assuming tax rate of 40%, he may get a refund of approx. €28k, but he will not have paid €28k in tax so the refund is capped at what he paid, lets say €20k. He will get this in 2018. So his net income in 2017 is approx, say, €55k. Well, if you have already applied for FD, the HSE will not seek a statement of earnings for 2018, so any contribution will be assessed on his submitted earnings and assets. The €70k will have come out of his earnings and his savings, so you may have a re-assessment done. The refund may/may not have come in to his savings and they will be increased and he will/may not be re-assessed at 7.5% on the new balance.

In short, the HSE will not trouble itself with tax rebates but they may appear in assets from time to time. On death, the HSE will receive a schedule of assets but will just check that all accounts were declared, not the balances.

 

[Barnerd]

Thanks for that Slim.