Mortgage Interest Relief
Introduction
The Minister for Finance announced the following changes in relation to Mortgage Interest Relief in his Supplementary Budget speech on 7 April 2009.
What is being curtailed from the 1st May 2009 is the number of tax years in respect of which mortgage interest relief may be claimed – that is, such tax relief may not be claimed on the interest paid on a qualifying home loan in the 8th and subsequent tax years of the life of that loan. All qualifying loans taken out in the 2002 tax year or earlier tax years are in this category.
However, mortgage interests tax relief may be claimed on the interest paid on a qualifying home loan in the first 7 tax years of the life of that loan.
- the rate at which tax relief is given to first-time buyers is -
- 25 per cent for tax years 1 and 2;
- 22.5 per cent for tax years 3, 4 and 5; and
- 20 per cent for tax years 6 and 7, and
- the rate at which tax relief is given to non-first-time buyers is 15%
Transitional Measure
For those mortgage holders who will no longer be entitled to mortgage interest relief as a result of this measure from 1st May 2009, relief will be allowed on a pro-rata basis for the first 4 months of 2009, that is, the portion of the relief that may already have been granted in respect of this year. This equates to a maximum relief amount for 2009 of €1,000 @ 15% for single individuals and €2,000 @ 15% married/widowed individuals.
In addition, where a new qualifying loan is taken out by such an individual between 1 May 2009 and 31 December 2009, only a proportionate amount of the annual maximum relief limit will be available in 2009 and the full annual maximum relief limit will be available for the tax years 2010 to 2015.
Example 1
Keith took out a qualifying home loan to purchase a house in 2001 for €200,000. Keith has had the benefit of tax relief on the interest paid on this loan for
- the tax years from 2001 to 2008; and
- for the period 1 January 2009 to 30 April 2009 (subject to one third of the yearly limit on interest relief for the 2009 tax year).
As he has already had the tax relief for 7 tax years, he is no longer entitled to the relief from the 1 May 2009.
Example 2
Mary, a first-time buyer takes out a qualifying home loan to purchase a house in 2006. She switches lender in 2010 in order to obtain a better interest rate. She remains entitled to the tax relief for the seven tax years 2006 – 2012 as switching mortgage provider will not affect entitlement to the tax relief.
Example 3
John took out a qualifying home loan for €350,000 in 2001. The balance outstanding on the mortgage at 1 September 2009 is €150,000 at which stage John re-mortgages for €250,000. €150,000 of the new loan is used to pay off the existing mortgage and €100,000 is used in the building of a house extension.
In this scenario, John has had the benefit of tax relief on the interest paid on the original mortgage from 2001 until 30 April 2009 at which stage he is no longer entitled to the relief on such interest (as he has already had the tax relief for 7 tax years).
However, John is entitled to tax relief for the tax years 2009 to 2015 on the interest on that part (i.e. €100,000) of the new mortgage that is used to build the new extension.
Example 4
Adrienne, a single individual, sells her house in October 2008 and clears her existing ten year old mortgage. In September 2009 Adrienne purchases her new residence, financed by a loan of €300,000 plus part of the proceeds of the sale of her previous home.
- Adrienne will be entitled to tax relief on the interest paid on the new loan for the tax years 2009 to 2015 inclusive at the non-first time buyer rate of 15%.
Example 5
Agnes, a single individual, sells her house in April 2009 and clears her existing ten year old mortgage. In September 2009, Agnes purchases her new residence, financed by a loan of €250,000.
Agnes will be entitled to tax relief on the interest paid on the new loan for the tax years 2009 to 2015 inclusive at the non first time buyer rate of 15%. However, the maximum amount of interest qualifying for relief on this new loan is:
- 2009 - €2,000 (i.e 8/12's of the annual €3,000 maximum from 1st May 2009 as she has received 4/12's relief up to end April 2009 on her previous mortgage)
- 2010 to 2015 - €3,000 per annum