How would your home fare under the Fair Deal scheme designed to ensure older people can afford nursing home care should they need it? It may depend on what you own. The more valuable your house, the more you may pay for nursing home care under the scheme. So how does it work, and what does it mean for your home?
What’s the deal?
The Fair Deal scheme provides financial support for long-term nursing home care. The cost of such care is substantial and, under the scheme, your finances are assessed as to how much of a contribution you can make. If that contribution is less than the amount of the fees, the HSE will pay the balance. Your contribution is based on your income and savings, investments and land or property.
So the contribution isn’t the same for everyone – it’s based on your means and the better off you are, the more you will pay. Yes, depending on your financial circumstances and the value of your home, you could end up paying vastly more than the person in the room next to you. But no matter your means, no one will pay more than the actual cost of care.
Do the sums
So how much will it cost, and what is the impact on your family home? Well, it’s a bit complicated. You will pay 80 per cent, or 40 per cent if you are part of a couple, of your assessable income – this is your total income minus allowable deductions. Income is any money you receive on a regular basis such as PAYE income, pension, social welfare or rental income.
You will also pay 7.5 per cent, or 3.75 per cent if you are part of a couple, of your assets. Any savings, stocks, shares, bonds, loans, your home and any other property, land or businesses you own are your assets. The first €36,000 of your assets (€72,000 if you are part of a couple) is excluded from the assessment.
The assessment doesn’t include your relatives’ or children’s income. However, it does include your partner’s income if you are married.
Fair for your home?
So what happens to your home under the Fair Deal? "The main property where you live is only included in the financial assessment for three years of the care. This is known as the 22.5 per cent or 'three-year cap'," says Marian Ryan of Taxback. com. "After three years, you will not pay any more based on the value of your home." This applies even if you are still getting long-term nursing home care.
Take George and Mildred. Their family home is in what has become one of Ireland’s most expensive postcodes and is now valued at €800,000. George needs nursing home care while Mildred will remain in their family home. Under the Fair Deal scheme, in addition to 40 per cent of their income, they will have to contribute 11.25 per cent of the value of their home and other assets for George’s care.
George and Mildred no doubt have other assets, but if, for example, their home was their only asset, the first €72,000 would be excluded from the valuation of their home. So the sum, based on their home’s value, payable for George’s care would be €81,900 over three years, or €27,300 a year.
If George was a widower going into care, in addition to paying 80 per cent of his income, he would have to pay 22.5 per cent of the value of his home with the first €36,000 excluded from the value of the home. So George would have to pay €171,900 over three years.
The contribution based on the value of your home is money that for many can be hard to come up with, no matter what your postcode. But this may be especially so for those rich on paper – for example, if the value of the house they bought back in the day has soared, though their pension and personal savings may be modest.
Charging order
If you can’t afford to pay the contribution based on the value of your home, there is an alternative to its sale. The contribution based on land and property can be deferred until after death through what’s called the “nursing home loan”. The 22.5 per cent or “three-year cap” still applies.
To apply for the nursing home loan, you must agree to a charge registered against your home. If you are in a couple, your spouse or partner must give consent. The order is really a type of mortgage that secures the money loaned by the Health Service Executive to cover your care. When you die, your home must be sold within a year, with your nursing home care bill paid to Revenue from the proceeds.
In certain circumstances, the payment may be deferred for a longer period, for example, if a spouse or partner or your former carer is still living in your principal private residence. You can apply for the loan when you first apply for Fair Deal, or at any stage while resident in the nursing home.
Selling up
If you sell your home or another property before or after the three-year cap expires, the proceeds become assessable as part of your cash assets.
So if widower George in nursing home care decides to sell his former residence, he will have to contribute 7.5 per cent of the cash proceeds each year towards the cost of his care for its duration, be that two years or 20 years. Once the home is sold, the three-year cap is gone. This may amount to vastly more money than if he didn’t sell.
If widower George sold after 10 years instead, in years one to three he would have paid 7.5 per cent of its value for his care. In years four to nine, the home would not be included in the assessment due to the three-year cap. But if he sold it in year 10, he would pay 7.5 per cent of the proceeds annually for the rest of the duration of his care.
Likewise if Mildred in the family home while her husband is in care, decides to sell up and move elsewhere, to downsize or reside with family, there is an impact for her too. With the family home converted to cash, 3.75 per cent of the sale proceeds must be paid annually towards George’s care for the duration of his care.
Selling prior to applying for the scheme has implications too. “I’ve seen it happen where somebody sells the house and then goes looking for Fair Deal to discover they don’t qualify because the home is now converted into cash, which all falls into reckoning,” says Tom Martyn of McDermott Creed & Martyn solicitors.
The financial disincentive to older people to sell homes they no longer need doesn’t make sense, says Martyn. “If someone has gone into a nursing home, why is their house being maintained with no one in it? The rules militate against selling. You would have thought the Government would be encouraging people to sell.”
Renting
Having unoccupied family homes dotted around the country doesn’t make sense in a housing crisis. Yes, you can rent out the family home, but any rental income would be assessable, says Ryan of Taxback.com. As with all other income, you will be required to pay 80 per cent of rental income (40 per cent if a couple) as part of your contribution to the scheme.
Rental income is also taxable income so you would have to file an annual tax return paying the relevant taxes too. So renting may not be worth the trouble, considering the return.
Planning ahead
Of course, you could decide to part with your home much sooner, some years before needing nursing home care at all. Be mindful, however, that Fair Deal assessors will look at your financial dealings over the last five years.
“We would urge people to be conscious of the five-year rule,” says Ryan. “The assessment will also look at any cash or assets that you have transferred in the last five years. If someone transferred cash or assets to a family member in the five years prior to the assessment, they will still be included as an asset.”
Going through hoops to pay less for the Fair Deal scheme, or to make sure your family gets more of your assets, can be risky, according to Tom Martyn. If the HSE finds that a house has been transferred, to a child for example, in the past five years, they will figure it back into calculations. “What I find is that the person needing Fair Deal then has to make up the payment,” says Martyn. “Because once the house is gone, it’s gone.”
He cautions against the hasty transfer of assets. “A parent might say, we’ll do this early just in case I need to go into a nursing home at some stage. My reaction is: it’s your house, you are living there, why are you transferring it out?
“It’s not necessarily the most awful thing to have to pay the State a percentage of the house,” he says. The greater risk may be transferring your biggest asset into somebody else’s name. “What I’ve seen happen is the child who got the asset is either not around, or is not prepared to transfer the asset back or to participate in paying for the care of the parent. It’s another child who is left to look after it. Or perhaps the person who needs nursing home care can’t get it because they have taken this step.”
It’s important to consider and plan financially for nursing home care, but not to the detriment of other possibilities, says Jonathan Sheahan of Compass Private Wealth. “If you were devising a strategy to ultimately avail of the Fair Deal scheme, you would have to plan five years or more away. But we are living a lot longer now, so you need to be careful that you haven’t given away all your assets.”
Planning too far out has its risks as well, he says. “If a 66-year-old is moving assets in the expectation of the Fair Deal scheme being around in five or more years, who knows if it is going to be, so you have to be holistic in your planning.”
Trying to box clever may not turn out to be that clever. Strategically divesting yourself of your assets so you will have less to contribute towards nursing home care may leave you without. If you get rid of everything but live long and healthily thereafter, you will have less for yourself.
