By the third decade of life, most Irish people start thinking about their retirement and financial planning. It is almost indispensable to leave the idea of long-term nursing home care, and relatively, the nursing home support scheme- Fair Deal, also comes into the picture. The good news is that tax can be much less of a burden in Ireland for people once they reach a certain age of 65. In Ireland, the general tax rules are applied to people over 65, with updated limits for tax relief. You start paying less tax on your income once you reach this age, whether it is general income, pensions, social welfare allowances, or rental income—everything counts. This blog jots down all the information about taxes in Ireland.
Taxes for Pensioners in Ireland
The minimum threshold limit for tax relief is an annual income of €18,000 for a single person and €36,000 for married couples or civil partners. For parents, additional exemption limits start at €575 each for the first two children. The Revenue identifies and classifies different types of taxable income beyond the threshold limit. Below is a list of them:
• Taxation on Pensions: It is broken down into many subcategories, such as occupational pensions, social welfare pensions, Pay-Related social insurance (PRSI), and foreign pensions earned by working abroad.
• Nursing Home Care and Medical Needs: Revenue offers tax exemptions on medical care and nursing home expenses at the highest rate of income tax paid by a taxpayer.
• PAYE: Those who are solely subject to PAYE taxes, including those whose non-PAYE income is subject to taxation by being factored into the calculation of their tax credits, are exempt from filing an annual return. However, those who are not obliged to pay PAYE taxes must voluntarily undergo the self-assessment system to submit their annual tax returns by October 31, 2023.
Tax Relief For Nursing Home Residents in Ireland
Tax relief is available at higher rates of income tax for taxpayers who have to bear nursing home expenses for themselves or a loved one. If you pay the higher rate of tax, any income exceeding the standard rate cut-off point is subject to a higher rate of 40%.
The tax relief for nursing home residents under the Fair Deal Scheme in Ireland changes based on the circumstances of the taxpayer. Anyone entering into nursing home care, whether they choose the FairDeal/Nursing Home Support Scheme or not, qualifies for tax relief.
The Fair Deal Scheme cost of care, on the other hand, offers relief on contributions to meet your income tax obligations. It also extends to a spouse's or partner’s taxes when they have equal rights to their income and assets.
Moreover, those who have opted for nursing home loan support in Ireland can get tax relief on their income, which accounts for contributions against cash assets. Individuals paying for the nursing home care of their parents are also included in the tax relief chain.
How Taxes for Seniors Impact Retirement Plans in Ireland
When you claim your pension, it is almost always possible to take some portion of the overall fund as a lump sum. A good chunk of this lump sum can also be claimed tax-free.
The maximum tax-free lump sum threshold is €200,000. Anything beyond that which you receive as a lump sum is referred to as an excess lump sum and is liable for tax.
If you are planning to shift to long-term nursing home care in later life or enter as a couple under the Fair Deal Scheme, then the smartest thing to do is consult a professional Fair Deal Advisor in Ireland and navigate the true potentials of the scheme based on your income and assets.
Have a power of attorney in place to safeguard your decisions in the future. It is a document that grants authority to another person you trust to act on your behalf if you lose mental capacity. This arrangement gives the grantee access to make financial decisions, pay off nursing home fees from your assets, and complete your obligations.
One way to claim tax relief is through an annual tax return. Alternatively, the resident, spouse, or children may request that tax relief be paid on a fortnightly or monthly basis, allowing for real-time tax relief.
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