Pay to go where? Why the elderly stay where they stay and how to keep everybody happy.

We lament that older people under-occupy homes, the older people probably aren’t so upset or they wouldn’t do it. They have reasons for this, a common one being that a large home is like keeping an ‘option’ open for visitors (often their adult siblings with grandchildren), or that they can’t find something else in the same location which they would like.

Is there a way to encourage older people to downsize, make it financially rewarding and at the same time resolve some of their concerns about where they live and why? The ‘way’ we’d suggest would be to use the most practical solutions available that tick the most boxes.

The first thing is to accept that older people may live in an area and want to stay there, so asking them to up and leave isn’t fair or going to work. The second consideration is if very high taxes would give a ‘nudge’ (the answer is yes but it’s a brutal way of doing it). The third issue is taxation and the fourth is a general issue with building supply and where it may be now or in the future.

Today’s idea is to take an existing property waiver, match it with a funded solution and throw some taxation ideas into the mix as well.

Here’s the short version: we already accept that people can build an extension to a home below 400 square feet without planning permission (this is a 20 x 20 room), so the idea would be to ramp that up to a ‘liveable’ unit size which in this instance is going to be one and a half times, or twice that amount. The new unit can be connected to the property or done as a stand alone granny flat if there is enough room to do it (some thinking around spaces and clearances would be required). Planning would be automatic if it is within the guidelines set out, but the property would require Part-M adherence (this has to do with disabled access and ensures that the new home is suitable for a person as they get into very senior old age).

The folio would need to be split to ensure the two properties are distinct in the land registry because within this solution the main home will be sold on separately.

Many elderly are ‘asset rich and cash poor’ so financing a move or anything like it was always going to be tricky, the funding issue can be gotten around by using a legal agreement whereby the person commits to a sale (by signing a contract in advance as the vendor – the reverse of what normally happens) at a certain ‘strike price’, or agreed reserve. This means they will have to sell if a buyer is willing to buy at a certain price, but only after the new home is finished.

The financing is raised via the NTMA who can charge 4% for the bridging money (the state will also get a return via taxation) which funds the building works. This is a better return than what is generally available, but they do so having secured a first lien for the capital and interest (an assumed roll up of 24 months at 4%) so the loan is secured.

So far we have a few bases covered, the ability to build an alternative home using infill sites or suitable extensions, the funding is also in place and the work can be carried out by any contractor suited to it, or perhaps the CIF could use the builders on their register to operate some kind of administered ‘stage payment’ system which gets the funding from the NTMA to the contractor as any overseeing architect takes care of the stage inspections.

The person can then sell their home free of capital gains tax, less the sum owed. This makes the ‘asset rich cash poor’ individual cash rich too and this can help in a myriad of ways, but it also frees up the larger home for use by somebody else.

Then we’ll hit the fiscal crack-pipe for good measure, by doing this the ‘granny flat’ can be passed on to somebody via probate CAT free, in doing so the person receiving it would most likely use it (which helps alleviate a housing need for older single adult children) or they could sell it to some other older person who wants to sell their main home. The main point being, this is a way of encouraging people to do it in the first place because the tax advantage down the road will help to make it attractive.

The home improvement VAT scheme could be used up to the current limits, this would bring down the VAT rate a little (on a blended basis). Alternatively, a person may want to keep their main home and rent it out (perhaps to one of their kids) or to give it to one of their children which will allow them to pass it on to them free of capital acquisition tax if certain rules are adhered to, and in doing so they have the nuclear family effect of everybody close by but without being under the ‘same roof’.

In this instance the general scheme may remain the same in terms of planning etc. but you don’t split the folio if the person is renting it out, but they do get a ‘tax free’ rent up to €14,400 a year, but above that they are taxable on all of it. What does that do? Suppress the rental price being asked for to no more than €1,200 for a family home.

The point is that by combining incentives in ways that will suit the people they are targeted at we might be able to find a ‘win-win’ solution.

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