My mother died last August 2021 and myself and my two brothers owe €120,000 to the Fair Deal scheme to be paid by August 2022.
The house has been valued at between €800,000 and €1.2 million. We understand you can inherit €335,000 each without paying tax. Two of us would like to pay off the €120,000 owed to the Fair Deal scheme. We would like to keep the house for a year or two before we sell it but are not sure how this would affect the inheritance for each of us when the house is eventually sold.
Mr P.M., email
Fair Deal is a great scheme and one that gives peace of mind to countless families. But it does come with certain responsibilities. The first of these is that you make a fair assessment of income and assets so that your contribution to your care can be accurately assessed. The second is that, where you take out a nursing home loan, you pay it in line with its terms and conditions.
The nursing home loan is, for most people, the credit granted by the State against the contribution due on the basis of the value of your home.
When you sign up to Fair Deal, you agree to pay 80 per cent of your income and 7.5 per cent of the value of your assets each year towards the cost of care. Those assets naturally include your home.
The scheme does make special provision in relation to the home. The 7.5 per cent annual contribution is capped at just three years where the contribution against the value of any other savings and investments continues for as long as you live.
In practical terms, for most people, finding 7.5 per cent of the value of one’s home out of readily accessible cash each year for the three years in question is not doable. As a result, the applicant applies for what is called a nursing home loan. This is effectively a charge on the property.
In your mother's case, it appears the contribution against the value of her home was around €40,000. We'll come back to this figure later but essentially your mother borrowed €40,000 a year for three years from the HSE. Naturally, this money has to be paid back and I understand there is no contest from any of you on that point.
Guidelines However, there are fairly strict guidelines in place governing how that is done.
Most importantly, as you know, the loan falls due when the nursing home resident dies, unless someone else such as a spouse, partner or dependent is living in the property – in which case it can be deferred until they die or move out of the property.
You have, as you note in your query, 12 months to settle the bill. The HSE passes details of the charge due and who to contact about it and the Revenue then deals with you. When the loan is paid back, Revenue lets the HSE know and the charge against the property is removed.
Of course, if the property is sold while the person is still under the Fair Deal scheme, that also triggers a liability for repayment and anyone selling the home in those circumstances is obliged to notify their local nursing home support office within 10 days.
This was not something that happened until recently except on rare occasions, because selling the home meant the proceeds were subject to the 7.5 per cent contribution rate without any three-year cap. However, recent tweaking of the rules to help address the housing crisis means that, even if the house is sold, the contribution from the property continues to be capped at three years.
It’s academic for you as your mother continued to own the property until her death but I reference it just in case it is relevant for anyone else reading this.
Tax implications As I understand it, what you are suggesting is that two of the three people inheriting the property are considering paying off the €120,000 due and all three of you then holding on to the property, at least for a couple of years.
How does that affect your inheritance? Not a lot but it will most likely have a capital gains tax implication.
Your inheritance is determined at the valuation date – generally the date of your mum’s death. It sounds like this property will constitute the major part of any inheritance but, either way, as you say each of you is entitled to receive up to €335,000 tax-free. Of course, this assumes none of you inherited anything when your father died. If you did, that would have to be deducted from the €335,000 cap before determining what tax-free wriggle room you have.
Depending on the final valuation of the property on the valuation date, you may or may not have an inheritance tax liability. If you do, it will have been due by the end of last October. Capital acquisitions tax arising before the end of August in any year falls due at the end of October.
If she had died in September, you would have had an extra 12 months.
The fact that you choose not to sell the house will not affect the deadline for paying any tax due. It will be up to you to find that money from other resources.
Beyond that, as this is not the principal private residence of any of the three of you, you will also face a capital gains tax liability on any increase in value of the property between the official valuation date and when you eventually sell it – just as you would for any other asset.
Returning to that €40,000 per annum contribution your mother made, that would indicate a property valuation of just under €540,000. Yet you say this home is worth between €800,000 and €1.2 million.
If your mother, or whoever was handling the Fair Deal application undervalued the property, it will be open to the HSE, via the Revenue Commissioners to pursue you for what should have been paid.
It is, of course, possible that the property could have increased in price over the years since your mother went into the nursing home and the capped €120,000 liability may date back quite some time, depending on how long she was in the nursing home but it is something to be careful about.
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
