Mortgage Reliefs

Mortgage Interest Relief

Mortgage interest was available in respect of interest paid on a qualifying loan to an Irish financial institution, where the loan was taken out to purchase, repair or develop a residential house, which is the main or sole residence of the claimant, his spouse or former spouse or a dependent relative. It has now almost ceased to be available

Prior to 2002 it was claimed as a tax allowance, and later a tax credit. The relief was later granted by direct payment by the Revenue to the Lender.  The interest due was reduced by an amount, which is in effect paid by the Revenue to the lender. The claimant is entitled to make a reduced payment. There were  caps on the amount of interest that qualifies for relief.

Formerly, relief was effectively available at the marginal rate (as an allowance reducing taxable income). There was later reduced so as to grant relief at the standard rate only. Later, relief has been granted at different rates, depending on the date of purchase and on whether the tax payer is  first time buyer and on the number of years for which the loan existed.

Development

25 percent was available to first time buyers in the first two years, reducing to 22.5 percent for the next three years and 20 percent until year 7. The rate was 15 percent for years 1 to 7 for other buyers. No relief was granted after the seventh year. The Finance Act 2010 continued relief at these levels until 2017 on qualifying loans taken out between 2004 and the end of 2011.

The Finance Act 2010 provided that qualifying loans taken out during 2012 would be entitled to relief at 15 percent for first time buyers and 10 percent for non-first-time buyers for the years 2012 to 2017. The ceiling for interest is €6,000 per annum for married or widowed persons and €3,000 for others.  Loans taken out after 1st January 2013 did not qualify for mortgage interest relief under Finance act 2010, with relief abolished in 2018.

In 2011 relief was granted, subject to limits based on whether the person is single, widowed or married.  A first time buyer is entitled to a maximum of €10,000 relief for single persons and €20,000 for widowed or married persons.  Non- first time buyers were entitled to a maximum of €3,000 for single persons and €6,000 for married or widowed persons.

Bridging Interest

There is a credit for so-called bridging loan interest.  This applies to a loan to finance the acquisition of another property for use as a residence, during a period while the previous residence is unsold.

Bridging loan interest paid for a period of up to 12 months from the date the loan is advanced, qualifies for relief, subject to the restrictions above,  as if no other interest was paid in that period.

Relief may still be claimed for the interest on the existing mortgage loan on the previous property, until sold. If a new mortgage is taken out within 12 months, interest for the balance of the 12 month period is treated as bridging interest for that period.  The relief is available for a 12 month period. Where it straddles two periods, relief is apportioned.

Relief at Source

Latterly, Mortgage interest relief is operated by way of tax relief at source. This reduces the payments of persons qualifying for it. Interest must be paid to a bank or similar institution.

The Revenue paid the allowance to the  financial institution. It must relate to a loan taken out to purchase, repair, develop or improve a residential premises within Ireland or the UK. It must be the sole or main residence of the taxpayer or spouse or his  present and former spouse or dependent relatives.

• €3,000   –  single persons
• €6,000 – married and widowed persons

In the first seven years, the entitlements increased to €10000 and €20,000.  The relief has been given as rates between 15 and 20% depending on a number of years since the loan was taken out .

The relief is given at lower 25% of interest paid or  capped  interest up to 15% by year.  The relief is available at rates and 25 to 15% . No first-time buyers to relief is 15% of interest paid so that a maximum relief €900 i.e. €6,000 .

In the case first-time buyers.  The relief is up to 25% of 20,000 i.e. €5,000 lower of 5000 or 25% or 25%of interest paid; €10000 single person 20,000 for married persons

Relief for residents outside the State does not operate by deduction at source. For those other than first-time buyers, relief is at 15% of interest paid. For first-time buyers, it is  25% in year one, reducing to 15% in year eight. The relief applies only to the interest element of the payment and not the capital repayments.

The relief applies so as to reduce mortgage repayments. Tax relief is not available in the seventh or eighth  year of a loan .

Finance Act 2012

Prior to FA 2012 Mortgage interest relief had existed for first time buyers for seven years after purchase.  Non- first time buyers who took  loans in 2012 were subject to reduced relief.

They were subject both to a lower rate of relief and to more  restrictive caps, €6,000 for married persons, €3,000 for unmarried persons.  First time buyers were entitled to a cap of up to €20,000  for married persons with €10,000 unmarried, with higher rate reduction.

FA 2012  provided for a new rate of mortgage interest relief of 30 per cent in respect of qualifying interest paid by those who took out a qualifying loan to purchase their first principal private residence in the period 2004 to 2008 (both years inclusive). It provided for the extension of the rates and ceilings of relief that apply to those who took out a qualifying loan during  the period 1 January 2004 to 31 December 2011..

2017 Extension

Finance Act 2017 provides for an  extension of mortgage interest relief for existing recipients, up to 2020. Qualifying relief was restricted to 75 percent for 2018, 50 percent for 2019 and 25 percent for 2020 of the interest paid on the qualifying loan.

The ceilings on qualifying interest were also reduced to 75 percent 2018, 50 percent 2019, and  25 percent 2020 of the interest savings that applied to the end of 2017.

Temporary 2023 Relief

Finance Act 2023 inserts a new section 473C into the TCA 1997 to provide for a temporary one-year Mortgage Interest Tax Relief. The Mortgage Interest Tax Relief will be available to taxpayers in respect of their mortgage on their principal private residence in the State where the outstanding mortgage balance was between €80,000 and €500,000 on 31 December 2022 and the taxpayer is compliant with Local Property Tax requirements.

Mortgage Interest Tax Relief will be available at the standard rate of income tax in respect of the increased interest paid on that loan between the year of assessment 2022 compared to the year of assessment 2023. Thus, the relievable interest is capped at €6,250 at the standard rate of income tax (20 per cent), resulting in maximum relief of€1,250 per property. The value of the relief is equal to the lesser of 20 per cent of the increased interest paid or €1,250, applying on a per property basis.

Pro-rating of the relief will apply in circumstances where the interest paid in either or both years of assessment is less than 12 months. The relief will operate by way of a credit offset against the taxpayer’s income tax liability in 2023. To claim the mortgage interest tax relief, the taxpayer must file a tax return with Revenue and provide the requisite information.