Fair Deal/Nursing Homes Rental income and tax due on eventual sale of house

T

telco

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I am getting conflicting information if some expert could please clarify I would appreciate it

Under the fair deal scheme if the family home is rented out and that rental income pays most of the nursing home fees - is that rental income subject to tax ?

If the family is eventually sold ( not currently possible as no EPA in place and resident has dementia) is that subject to CAT ie it is considered an investment asset /not the family home inherited by siblings ( when the threshold is €400K for each sibling). I was informed that CAT is applied to the difference between the valuation of the house at time of fair deal application and eventual actual sales proceeds of the house

Thank you
 
I’m no expert, my understanding is;

Unless it is rent a room relief which would not apply in this case, rental income is subject to tax like any other income. Tax relief can be claimed on the nursing home fees.

The Fair Deal valuation on the family home is only to assess how much you pay towards your care, it would have no relevance for any future taxes.
 

I think you're mixing up capital acquisitions tax CAT and capital gains tax (CGT). CAT applies to gifts and inheritances, CGT applies to selling things for more than you paid for them.

If the house is sold while the owner is still alive, there will likely be some CGT to pay, as the house was rented out while the owner was in a nursing home.

This is a bit oversimplified but should give you the idea. The difference between the selling price and the price originally paid to buy the house is the gain. You get PPR relief (principal private residence) on the percentage of the gain equal to the amount of time the person lived in the house. CGT is charged at 33% on the remaining gain.

So for example, a house is sold for 300k, was bought for 100k, the person owned it for 20 years and lived in it for 15 years:
The gain is 200k (300k-100k)
PPR relief is 75% (15yrs/20yrs)
CGT is charged on 200k*25% = 50k
50k @33% = 16.5k tax.

As I say, this is oversimplified. There may be indexation, selling and acquisition costs, enhancement expenditure, annual exemption, etc. to take into account as well.
 
Thank you - yes I mean't CGT ...the house will not be sold while owner is still alive , as siblings do not have enduring power of attorney (owner has dementia) , it will be sold when owner passes - I am wondering if there is CGT bill payable then (given the house was rented out) or does CAT apply ?
 

There could be CGT to pay in that situation but it would only be on the difference between the value on the date of death and what it's sold for. Anything that happened earlier will have no impact.

CAT will apply to the amount that the children inherit above their lifetime threshold of €400k.
 
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