Home Carers Allowance from 6 April 2000

This article is based on the provisions contained in Section 12 Finance Bill 2000.

Introduction

The Home Carer’s Allowance is a new tax allowance of up to ₤3,000 at the standard rate of income tax (22% for 2000/2001). The allowance may be claimed by a married couple where one spouse (the “Home Carer”) cares for one or more dependent persons. If the Home Carer has some income in his/her own right the allowance may still be claimed (see “conditions” following). Only one allowance is due irrespective of the number of persons being cared for. Relief in respect of a dependent person is granted to only one qualifying claimant. This article outlines the conditions which must be met to claim the allowance and the interaction between the allowance and the increased standard rate band for dual income married couples.

What are the conditions?

The conditions which must be met are as follows:

• The married couple must be jointly assessed to tax – it does not apply where married couples are taxed as single persons.
• The Home Carer must care for one or more dependent persons. A dependent person is:
  • a child for whom Social Welfare Child Benefit is payable - this includes all children under 16 and children in full-time education under 19; or
  • a person aged 65 years or over; or
  • a person who is permanently in capacitated by reason of mental or physical infirmity.

A dependent person does not include a spouse.

• The dependent person(s) must normally reside with the married couple for the tax year. For rules regarding relatives, see over.
• The Home Carer’s income must not exceed ₤4,000 for the tax year. Where the income is between ₤4,000 and₤5,000 some measure of relief will still be given.

Does a relative have to reside with the Home Carer?

No. Dependent persons who are relatives can be cared for outside the home, if they reside:

• Next door in a neighbouring residence, or
• On the same property, or
• Within 2 kilometres of the claimant.

There must, however, be a direct communication link (e.g. telephone, alarm system) between the two residences.

A relative includes a relative by marriage or a person for whom the claimant acts as a legal guardian.

How does the income of the Home Carer affect the allowance?

If the Home Carer has income of ₤4,000 or less in his/her own right for the tax year the full allowance may be claimed. For the purposes of this allowance, income is taken as income chargeable to tax such as income from a part-time job, rents, dividends etc., but does not include the Carer’s Allowance payable by the Department of Social, Community and Family Affairs. Income which is disregarded for tax purposes or which is exempted from the charge to tax is excluded.

If the income of the Home Carer is between ₤4,000 and ₤5,000 then the allowance is reduced (see chart below). If the income is ₤5,000 or more then there is no allowance due. The Home Carer’s Allowance is reduced on a ₤3 for ₤1 basis where the income of the Home Carer exceeds ₤4,000, for example:

Income of Home Carer	Allowance at Standard Rate (22%)
₤4,000	₤3,000
₤4,100	₤2,700	i.e. ₤3,000 less ₤100 × 3
₤4,250	₤2,250	i.e. ₤3,000 less ₤250 × 3
₤4,500	₤1,500	i.e. ₤3,000 less ₤500 × 3
₤4,750	₤750	i.e. ₤3,000 less ₤750 × 3
₤4,900	₤300	i.e. ₤3,000 less ₤900 × 3
₤5,000	Nil

What happens if the allowance is granted and in the next year the Home Carer’s income exceeds the limit?

If the Home Carer’s income exceeds ₤5,000, the allowance will still be due for the year provided that:

• The other conditions for the allowance are met, and
• The allowance was granted for the immediately preceding tax year.

The amount of the allowance is restricted to the amount granted for the immediately preceding tax year.

However, if the couple claim the increased standard rate tax band for dual income couples, the Home Carer’s Allowance will not be due.

Example

A married couple are granted the Home Carer’s Allowance for 2000/01. In the next year (2001/02) the Home Carer takes up employment in the workplace and earns ₤7,000.

The allowance will still be due for 2001/02, provided that the increased standard rate tax band for dual income couples is not claimed.

Can married couples claim both the Home Carer’s Allowance and the increased standard rate tax band for dual income couples?

No. But they can claim whichever of the two is more beneficial. In practice, the tax office will grant the more beneficial treatment.

Note: The standard rate tax band for dual income married couples is ₤28,000 subject to an increase of up to ₤6,000. The increase is limited to the lower of ₤6,000 or the amount of the income of the spouse with the smaller income - this increase is not transferable between spouses.

Example 1

Home Carer has no income.
Home Carer’s Allowance of ₤3,000 is due.

Example 2

Home Carer has a Social Welfare pension of ₤4,500.
Spouse has income of ₤23,000.
Home Carer’s Allowance of ₤1,500 (i.e. ₤3,000 less ₤500 × 3) is due.

The increased standard rate tax band is not relevant as the combined incomes are below ₤28,000.

Example 3

Home Carer has rental income of ₤4,500.
Spouse has income of ₤24,000.

Calculate whether the Home Carer’s Allowance or the increased standard rate tax band is more beneficial.

Home Carer’s Allowance computation

The allowance is ₤1,500 (i.e. ₤3,000 less ₤500 × 3).
The tax position is:

₤28,000 × 22% =	₤6,160
₤500 × 44% =	₤220
Total	₤6,380
Less
Home Carer’s Allowance ₤1,500 × 22% =	₤330
Tax (before relief for Personal Allowances)	₤6,050

Increased Rate Band computation

The tax position is:

₤28,500 × 22% =	₤6,270
Tax (before relief for Personal Allowances)	₤6,270

The Home Carer’s Allowance is more beneficial in this example.

Example 4

Home Carer has investment income of ₤4,500.
Spouse has income of ₤28,500.

Calculate whether the Home Carer’s Allowance or the increased standard rate tax band is more beneficial.

Home Carer’s Allowance computation

The allowance is ₤1,500 (i.e. ₤3,000 less ₤500 × 3).
The tax position is:

₤28,000 × 22% =	₤6,160
₤5,000 × 44% =	₤2,200
Total	₤8,360
Less
Home Carer’s Allowance ₤1,500 × 22% =	₤330
Tax (before relief for Personal Allowances)	₤8,030

Increased Rate Band computation

The tax position is:

(₤28,000 + ₤4,500) × 22% =	₤7,150
₤500 × 44% =	₤220
Tax (before relief for Personal Allowances)	₤7,370

The increased standard rate tax band is more beneficial in this example.

Example 5

Home Carer has a salary of ₤8,000.
Spouse has income of ₤30,000.

The Home Carer’s Allowance is not due as the Home Carer’s income exceeds the limit.