As the autumn draws in, you might spot them: they’re the homes where the lights go on at the same time every night, set by automated switches to bring some brightness to otherwise empty homes.
Dotted across the country are properties which were left vacant when their owners moved into nursing homes to avail of the Fair Deal. Now the Government hopes to release some of these homes into the rental market by removing challenges to letting them out, or selling them, in an effort to boost much needed supply in the housing market.
But will the strategy actually work and what will it mean for families?
Fair Deal and rents
Introduced back in 2009, the Fair Deal replaced the old subvention scheme, with the aim of allowing people to contribute towards the cost of their long-term nursing home care, in line with what they can afford.
Typically this means that those availing of it will give up, after exemptions, 80 per cent of all their after-tax income (40 per cent for couples), as well as 7.5 per cent (3.75 per cent for couples) of their assets. The first €36,000 of an individual’s assets, or €72,000 in the case of a couple, are exempt from this.
The 80 per cent of income rule also applies to any income that might be generated by renting out the family home, which has been a big reason why so many homes have remained vacant.
"You couldn't make it worse," says Tom Murray of Fair Deal Advice, of the current regime.
Indeed, renting out a family home at the moment could see the family actually end up “being worse off financially”, he says.
This is because a house in Dublin, for example, might rent for €2,000 a month but, after tax, all the income will be subject to the 80 per cent deduction in the case of a single person. This means that only 20 per cent will be left to cover expenses such as insurance, agent’s commission etc, which may not be enough to cover the cost of renting.
Unsurprisingly then, most families opt to keep the homes vacant rather than take on the hassle of renting them out for such pitiful returns, with renting only making sense in a few limited circumstances.
“The only time I might recommend they rent, is when taking out a nursing home loan to pay for the cost [of care], as by renting they might reduce the cost of the loan,” says Murray. A nursing home loan (NHL) can be availed of when there aren’t enough liquid assets to settle the annual 7.5 per cent charge on assets. Repayment can be deferred until after death.
As a result, thousands of homes are being left vacant each year – many of them in much sought-after areas, in well-established estates close to schools and amenities.
Padraic Grennan, founder of EmptyHomes.ie, comes across such properties in his work trying to bring vacant properties back to use.
“Generally speaking they’re the bigger houses, the houses where families have been raised,” he says, adding, “in terms of the housing crisis they’re ideal.”
However, under the current system, the properties remain “frozen in time”, Grennan notes, until the owner dies and probate kicks in.
Independent TD Denis Naughten puts the figure at about 25,000 in total, with about 4,500 homes being left vacant each year, while figures from Revenue suggest that there were 7,800 claims for an exemption from the Local Property Tax due to illness in 2020.
Will renting out your property under the Fair Deal be worthwhile?
Joe, a widower, is moving into a nursing home, and looking to rent out his house for €2,000 a month. His only income is his State pension of €13,159
Gross annual rental income €24,000
Expenses €3,060
Tax at 20 per cent €2,973
Net annual rental income €17,967
Net monthly rental income €1,497
Source: SOBT Private Tax Clients; example assumes Joe paid no medical expenses or nursing home fees personally
The changes
Now, in an effort to bring such properties into the rental market, Minister for Housing Darragh O’Brien has signalled that income from renting a family home will soon be exempt from contributions to the Fair Deal, with changes, as set out in the new Housing for All document, expected by year end.
From a financial perspective it makes sense – after all, most families are not renting at present, so there won’t be a loss in income for the exchequer.
But will it make sense from a housing policy perspective?
Murray says he has had calls from people interested in renting out the family home and availing of the changes, but is unsure how it will play out.
“I’m a bit sceptical. If it comes through it will be good in some ways. Whether or not it will release the quantity of houses they’re talking about, I don’t know... I personally don’t think that there is going to be the great release of property that he’s claiming,” says Murray, noting that just 30 per cent of the mooted houses may end up on the rental market – “if that”.
Nonetheless, this could make a difference in certain areas, particularly for those in older, established areas where rental properties are in short supply.
But there remain some obstacles.
First of all, as it stands, the intention to remove the claim to rental income is just that – an intention. After all, it was first mooted by then minister for housing Eoghan Murphy back in 2017, and it still has no legislative basis as it stands. And, as Murray notes, it took five years before recent changes to the regime for farming families were implemented.
There is also the issue as to whether or not these houses – which may have stair lifts etc – will be up to a standard for the rental market.
Also, while the homes may be vacant, they may not be vacant all the time, with children using the family home to visit parents in a nearby nursing home, or parents themselves coming out to the family home on day visits.
There may be further complications for those who availed of an NHL. This loan is repayable within 12 months and is typically repaid through the sale of a family home.
But if this home is being rented, it may require the tenant to leave.
“And if you ended up getting a tricky tenant who would refuse to leave, you would be subject to revenue chasing you and charging you interest on the loan,” says Murray.
A further issue is the concern that older people may be moved into nursing homes prematurely, if families see a financial incentive to generate an income by renting out their home.
Minister of State for Older People Mary Butler has raised such concerns, while, in a letter to this newspaper, Patricia Rickard-Clarke, chairwoman of Safeguarding Ireland, echoed these sentiments, noting that any changes should ensure that when renting a home the informed consent of the owner is given, and that there is an assurance that the rental income is solely for the benefit and use of the owner.
There is also the emotional pull to the family home; discarding of all its contents, and memories, while the owner is still alive, may not appeal to some families.
Tax implications
Success – if it’s measured by increasing the number of homes to rent – may depend on the financial incentive to do so. With rents remaining at lofty levels, it may appear to be the case, but families will need to do their sums before making any decision.
After all, tax will still need to be paid.
According to Shay O’Brien, managing director of SOBT, whoever owns the property will be the beneficiary of the rental income, and subject to a tax bill on it; so, in the case of the Fair Deal then, it will be the parent in the nursing home.
As the example above shows, due to the low level of taxes paid by a pensioner with limited income, renting out a home can be an attractive proposition, as the pensioner gets to keep almost 75 per cent of the rent, once expenses and taxes are deducted.
If the children then wish to benefit from the rental income, there are further tax considerations to consider. As O’Brien notes, parents can gift each of their children €3,000 a year (and also their grandchildren) tax-free under the small gifts exemption. Any rental income in excess of this handed over to the children will start to eat into their inheritance tax-free threshold.
This may not be an issue, however, depending on the wealth of the family; in the case of a €500,000 house, for example, with three children and no other family assets, reaching the threshold of €335,000 is unlikely to be an issue.
There may also be a capital gains tax (CGT) implication from renting out a family home. Typically, so-called “principal private residences” are exempt from CGT. However, when rented out, CGT may apply at a rate of 33 per cent.
Consider this example from O’Brien. Let’s say Joe, in the example above, ends up renting out his home for three years and nine months. He has owned the property for 50 years and originally bought the house for £8,000 (€10,160). The house sells for €500,000, and the standard auctioneer and legal fees apply.
The ultimate CGT bill, however, is just €6,792, as Joe receives relief for the years he lived in the house, plus for the last 12 months he is “deemed” to have occupied the house under Revenue rules.
Selling the family home
With the Fair Deal there is also a disincentive to sell the family home. Under the scheme, in addition to 80 per cent of income, beneficiaries of nursing home care under the scheme must also contribute 7.5 per cent of the value of any assets they hold (3.75 per cent for couples) – such as the family home – each year.
However, in the case of a family home, there is a three-year cap on this levy, which means that if the parent spends three years in a family home, they will give up 22.5 per cent of the value of the home for the cost of their care. Thereafter, no further charge is made against the family home.
However, this doesn’t mean the home can be sold in year three; if it is, then the proceeds of the sale become an asset, and once again come back into the 7.5 per cent calculation.
Thus, families tend to wait until the parent has died to sell the family home – which is another reason for the proliferation of vacant homes.
In an effort then to encourage more families to sell the family home, an amendment is due to be shortly introduced which means that provided the parent is in a nursing home for at least three years, then the proceeds from the sale of the family home are no longer chargeable to the Fair Deal.
Murray is sceptical, however, as to whether or not this will have a real impact, noting that the typical tenure in a nursing home is just 2.5 years – so many won’t even reach the three-year period to benefit from it.
A better solution, he says, would be to allow families to sell the family home immediately, but cap the contribution to three years. This would mean then, for example, that a family home worth €500,000 could be sold, with 7.5 per cent going to the HSE each year, for the first three years, or until the parent dies.
The house would then be exempt in year four.
