Sorting out rental income my father never told Revenue about

My father availed of the Fair Deal Scheme back in December 2018 and he died in May 2022. He was completely in control of all his faculties and moving into the home was his own choice, it was a sound decision as he was well taken care of and as his children we were happy about as none of us lived near.

I am an executor of the will and it has come to light that he did not file any tax returns for the period he had the house rented out. I contacted Revenue was told to file forms for the last number of years on his behalf, I took this to be Form 12s as he was mainly a PAYE earner with minimal rental income.

My solicitor needs to know how much tax he owes, but I can’t get a straight answer from Revenue. To add to this, my father did not use all his health tax credits and I can’t get any information on what form I need to fill in for the dates of January 1st to May 2022, as this all needs to go into the SA2 form for probate.

To add additional stress, there is the moratorium on evictions for renters, and so there is still money being paid over monthly which is part of his estate. But we will owe the bill of the Fair Deal scheme in May, after which there will be penalty charges applied.

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His will left all assets to be split evenly, which will entail selling the house, including costs to clear out what he left behind. I have already paid the insurance for the year and I feel that there will be enough money in his accounts to clear the Fair Deal scheme in May, but I can’t be sure if there will be a large tax bill at the end.

My questions are these. What way do I go about getting a final tax bill from Revenue in relation to my father’s unpaid rental income, including for the year he died, as I’d really like not to be in debt with them? Can I use the rental monies as part payment? Do I, as the executor have to file and pay tax returns? And will the sale of the house be subject to CAT or CGT, as he was in a home before he died and by the time it is sold there will be over a year between his death and the sale?

And as a side question, do you think there will be any assistance or amendments to the eviction rules for those who are in the Fair Deal scheme, lost a parent and can’t get assistance from anywhere unless we pay a qualified tax accountant to help on top of everything else?

Ms JS

There’s an awful lot in here, but it breaks down into two elements – first, the undeclared rental income, and second, dealing with the ban on evictions.

You do not state specifically, but it appears to me that there are two issues with the rental income. First, your father, who retained full control over his affairs, did not file a tax return for that income. Given that position, I am also assuming he did not notify his local nursing home support office of that rental income, which would have triggered an adjustment of his Fair Deal financial contribution.

The tax side is fairly straightforward. Yes, you as executor do need to file returns for the years in which the property was rented out. Which form depends on the amount of the rent. The Revenue Commissioners tell me that if the annual new rental income (after allowances and expenses) is greater than €5,000, or the gross rental income before any deductions is greater than €30,000, you will need to file a Form 11, which is the tax return usually completed by self-employed people.

However, if the rental income is below these net and gross thresholds, you can use a Form 12, which is what most PAYE taxpayers use for filing tax returns. The same rules apply to the 2022 tax year in which he died.

As an aside, any outstanding eligible health expenses should be included on the same form, whichever one it is you have to complete. They will also need to include details of any other income and tax already due and/or paid on that income.

It is unclear if your dad did file returns which were incomplete, or whether, as a PAYE earner and pensioner, he simply never filed returns. If there were previous returns, you would need to let Revenue know that these new returns replace previous returns.

Also, if he did not do so, you will also need to contact the nursing home support office that was dealing with his Fair Deal process and inform them of the rent for each year.

Recent changes to the rules mean that Fair Deal nursing home residents only have to hand over 40 per cent of rental income on their family home to the HSE as part of their Fair Deal contribution, rather than the 80 per cent due on all other income.

However, this appears to have come too late for your father, as it was only introduced in 2022. So you can expect to have to hand over 80 per cent of the net rental income, after the tax side is sorted out, to retrospectively fund his nursing home care.

How long will it take Revenue to sort his taxes? Not long, really. They’re pretty efficient once they get all the necessary paperwork – a matter of weeks. Given you are looking here potentially at returns for five years, it might take a bit longer, but not much.

And as to what is owing, you could always get an accountant – or someone like taxback.com or similar services – that are familiar with tax returns to crunch the numbers (and do the returns). The cost can be offset against his tax bill. But, in any case, you should be able to get a rough estimate yourself.

To defend Revenue, I can certainly see how they would not be in a position to say what tax is owing until they have the full details of his affairs before them.

Then, as you say, you have to file an SA2 form with Revenue as part of the probate process. The tax office has to get in touch with you within 35 working days (seven weeks) either to finalise the process or let you know that they need more information. It is in your interests to ensure that you include everything Revenue is likely to need with the original application.

This includes your father’s name, address, PPS number, his date of death, your name and address as executor, a copy of his will, whether probate has been granted (and if so, on what date), the net value of his estate after taxes, the market value of any assets he may have sold in the four years from 2018, and any sources of income in the same four years before the year of his death.

If Revenue misses its deadline and you have delivered full and accurate information, you are entitled to distribute the proceeds of the estate, and will not face any personal liability even if there is a subsequent review.

Finally, we come to the eviction ban. Clearly you cannot sell the house (unless someone buys with a sitting tenant, which is most improbable). So you are stuck. And that Fair Deal deadline is ticking with the prospect of interest being added to any outstanding Fair Deal loan after a year has passed since your father’s death.

The good news is that Revenue will entertain a request to review any interest charge, and I would advise you to contact Revenue to request such a review. You, or whoever was the “responsible person” in the original nursing home loan application, should have heard from Revenue about repayment of the bill since your dad died, so the necessary detail should be to hand.

Any request for a review needs to outline the reasons for the delay in payment. The tax office apparently has a template highlighting what it considers the information it needs to consider any case, so you will need to provide that on request from them.

While clearly Revenue is not going to make a decision on the back of a media query without possession of the full facts – not least as I did not give them any identifying information – they did give me some guidance which I think should be of some comfort to you.

“Each case is assessed on its own merits but it is expected, with the scenario outlined, once payment was received promptly after the sale closed, that Revenue would look favourably on any review of interest,” Revenue said in a statement.

So I think you can be reassured that your inability to sell the home – and repay the nursing home debt on time – due to Government policy will not be held against you financially.

You ask whether the sale of the house will be subject to CAT (capital acquisitions tax, otherwise known as inheritance tax or gift tax) or CGT (capital gains tax) when it is sold.

CAT can be a tax issue for a beneficiary – i.e. those inheriting from your father – if they receive benefit over certain thresholds. For children, this figure is €335,000 and would include anything you already got on the death of your mother. It is not an issue for your father’s tax affairs, so you don’t need to worry about that.

Normally, CGT would be due because the house had been rented for part of the time he owned it. But a feature of capital gains tax in Ireland is that a CT liability dies with the person. So once your father died, any CGT he might have owed on the sale of the house is written off and need not concern you.

What might concern you, however, is any increase in the value of the property between your dad’s date of death and when you can eventually sell it after the eviction ban lapses. You’ll need to calculate this, make a CGT return and pay the tax due before distributing proceeds from the sale of the property under the terms of his will.

That obviously does not preclude you distributing other assets under the terms of the will – once you have sorted out the tax return issues on the rental income, and also ascertained what if anything of that rent is owing to the HSE as part of his Fair Deal agreement.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice