A fair deal?

The Fair Deal scheme for nursing home care pays scant attention to the complexity of land succession issues, writes

THE days are gone where ageing farmers can rest in the comfort of knowing that their family will take care of them in their autumn years when care is needed.

I have been advising farmers on succession matters for more than three decades and I have noticed in the past fifteen years or so that the issue of nursing home care, and qualifying for same, is not far from being top of the agenda whereas it was rarely on the agenda twenty years ago.

My typical succession consultation has two main topics for discussion; namely, does one hold back part of the farm as security in the event of things going awry for the successor, such as matrimonial or financial difficulties or does one transfer everything and throw caution to the wind but in the process make themselves eligible for free nursing home care.

This for many is a massive dilemma.

Regardless of which route you choose, you may be dammed if you do and dammed if you don’t. Only time will tell.

The principal reason why such a dilemma exists in the first place is the unfairness of assessing the notional income from a farm at 7.5% of the current market value of that farm. So a 100 acre farm worth €1m is deemed to generate an income of €75,000 per annum.

Apart from highly profitable dairy farms the 2015 National Farm Survey would suggest that this is fantasy as the average family farm income was €26,303 in that year and was less in 2016.

The following case study is based on a farm of 80 acres and highlights the difficulties that can arise in what is a relatively modest farming operation.

Unfairness

The most unfair aspect of the scheme is that it takes scant account of the nature of family farms in terms of succession.

Many farms have been in the family for generations and are not viewed to have a certain monetary value but rather as an asset that they are custodians of and that they hand on to the next generation to do the same.

The scheme does distinguish between situations where there is an obvious intended successor by way of limiting the farming asset assessment to three years, subject to certain conditions, to ensure (in the HSE’s words) the financial sustainability of family farms.

In many situations this could still mean paying the full cost of nursing home care for three years which could be up to €200,000 or even more in certain cases.

In many other situations it will mean paying the full cost of care until the care recipient passes on.

It is difficult to see how this measure ensures the financial sustainability of family farms.

In addition to including the value of the family farm in the means assessment there are also other scheme conditions that could not be said to represent a Fair Deal such as; ÷The five year rule i.e. transfers of farms in the previous five years are treated as if they never happened, is grossly unfair where the transferee is the natural and obvious successor. ÷The 7.5% deemed income based on farm value bears no relationship to reality. In the six years 2011 to 2016 the average return on investment from farming is typically less than 3% in terms of income and has been close to zero in the same period in terms of capital appreciation. ÷Where the farm is rented or leased out, both the rent and the 7.5% of farm value is assessed. This is double counting. ÷The assessment of savings and investments not alone includes the interest and dividends but also includes 7.5% of the capital value of those savings or investments. This is also double counting. ÷Assets/investments are assessed at their gross value with no account taken of taxation.

For example in the case study below, Joe’s co-op shares are assessed on their market value of €50,000 but in reality if he is to cash them in to pay the nursing home charges, he will pay €16,081 in Capital Gains Tax.

Nursing home charges are not deductible against Capita Gains so assessing the gross value is unfair.

Action

Recently there has been some political commentary about reviewing the scheme particularly in regard to the inclusion of family farms in the means assessment.

This talk had died away and probably will stay away until an election beckons.

While the political door is ajar, it now behoves the farming representative bodies to ensure that the scheme is truly a Fair Deal when it comes to farmers and that the possibility of imposing financial hardship on family farms is removed.

Martin O’Sullivan is the author of the ACA He is a partner in O’Sullivan Malone and Company, accountants and registered auditors. www.som.ie. Ph: 051 640397 THE most recent article in this series (March 7 edition) looked at the potential taxation benefits of availing of Business Property Relief for land transfers. The headline incorrectly referred to ‘Agricultural Relief’ rather than Business Relief. The main thrust of the article was concerned with Business Relief.