For illustrative purposes the following assumptions are being made: -

The Nursing Home is a 60 bed unit on a 3 acre site, designed to meet the standards stipulated by the Health Information and Quality Authority (HIQA) and Regulations made under the Health Act 2007, with special emphasis on Health and Safety issues, and designed to maximise the efficient use of labour.   Fixtures, i.e. kitchen Etc. form part of the structural costs for tax purposes.

Background:

The tax relief’s, for Nursing Homes and care residential units, have given immense value to the Government in providing modern community care beds for older people at minimum costs. The per bed tax revenue foregone by the exchequer, amounts   to between €55,000 and €60,000, depending on location. For tax calculation there is an investor lock in period of 15 years

The projected costs of building a 60 bed nursing home in rural urban Ireland is €8.5 million, and in Dublin, and environments €10.0 million.  Difference in cost is primarily related to site and construction costs. The consequence of  an investment of between €8.5 to €10 million per nursing home, encourages  four commercial driven groups, to cooperate, and  provide the finance and expertise, to successfully construct and operate the 21,000 additional community beds required for the future.

The four commercial groups are: BANKS, DEVELOPER, INVESTOR, and OPERATOR.

Traditionally the role of developer, investor, and operator, was a function carried out by the owner of most nursing homes. However the magnitude of the investment, and capital tax allowances, required their role be more clearly identified and defined in order to assure the success of the investment.

*BANKS: The banking institution will first view the developer, on his record, and will have particular interest on the history and experience of the operator.  They will also access the risks involved. A well documented researched Feasibility Study will determine the banks positive attitude to the project.

*DEVELOPER: The objective of the developer is to maximise the value of the assets in the project. A Nursing Home may form part of a wider commercial or residential development. Developers may be required, in the first years of the project, to give the bank a guarantee on the operating cash flow of the nursing home. Developers may, by agreement, share a percentage of the capital tax allowances.

*INVESTOR: The investor will be determined to minimise his tax liability, and to maximise the return on his personal investment. The investors return is generally subject to the quality of the nursing home operator, the risk involved, and bank interest rates. The capital tax allowances may be claimed against income over the first seven years, while the lock in period is fifteen years. For investors to maximise the benefit of their capital tax allowances they should have a minimum PAYE exposure of €31, 743 and have a large rental income subject to the higher 41% tax band. 

The Banking institutions will only advance a percentage of the total investment; the remaining investment portion should be available from private sources.   It is on the investment from private sources, that the return on investment is calculated.  Investors may split the capital tax allowances with the developer.

A claw back on the capital tax allowances may arise, if the building ceases to be used as a nursing home, or if the investors withdraw from the scheme. Where there is more than one investor, an ownership/partnership agreement must be entered into to protect the investment structure. To allow investors exit the scheme the developer may put in place a “put and call option”, with the operator or developer. During the term of the scheme there will be no reduction on the capital amount borrowed by the investors.

*OPERATOR:  The driving force in the success of the project over the fifteen year “lock in period” will be the operator, and the senior nursing staff employed in the home. The operator should form a limited co., to manage the nursing home.

The first objective of the management company will be to uphold the quality standards and meet the requirements of the Health Act 2007. The second objective will be to ensure the financial viability of the nursing home and thirdly to meet the monthly lease repayments to the investors, and finally to grow a “buy out fund” to allow the “put and call option” be exercised at the agreements end. Of critical importance to the success of the project, will be the Human Resource policies. These will need to be innovative, attractive, and creative to encourage senior staff to remain during the project period.

RETIREMENT HOMES

Section 33 of the Finance Act 2002 provides for a scheme of capital allowances for expenditure incurred on the construction or refurbishment of housing units associated with a registered nursing home. The housing units must be constructed on a site adjacent to a registered nursing home.  The writing down allowances will be at a rate of 15%for the first 6 years, and 10% in year 7.

 Some of the conditions for Qualifying units are (a) the units must be operated by a registered nursing home (b), the nursing home must provide 24/7 medical care to the units (c) the units must be leased only to a tenant who is certified by a medical practitioner as requiring such accommodation. (d) there must be a day care centre on site complying with HSE requirements.

Construction of day care centre will not qualify for capital allowances. Capital allowances will not be available if any part of the construction costs are grant aided. Other conditions also apply.

Changes in the Finance Act 2007 altered the conditions of most property tax schemes, and gave an end date of April 30, 2010. The changes may have consequences for the Day Care conditions. However retirement units are seen as an integrated part of community care and are expected to continue with no fixed end deadline.

Other schemes for retirement homes/units are emerging, and a combination of different schemes are emerging which require further study.

Where a group of retirement homes are in place adjacent to a registered nursing home a Management Company should be in place for operational and tax purposes.    

The above information is provided to assist investors considering  the Healthcare Sector. As the laws covering capital Tax Allowances,are complex and evolving, no reader of this website should consider investing in the Healthcare Sector without consulting  professional  tax advisers.
 
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