Revenue Note for Guidance

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Revenue Note for Guidance

Chapter 3

Principal provisions relating to the payment of interest

Overview

This Chapter provides for a number of tax reliefs in respect of the payment of interest. Sections 244 and 245 are concerned with relief for the payment of interest for the purchase of a sole or main residence while section 244A provides for tax relief at source in the case of mortgage interest. Sections 247 to 253 are concerned with the granting of relief for interest paid on loans used to acquire an interest in a business. In addition, the Chapter imposes a withholding tax on the payment of interest by companies and on the payment of interest to non-residents generally (section 246). Finally, the Chapter contains a number of measures concerned with the withdrawal of capital from a business (section 254) and the payment of interest less tax (section 255).

244 Relief for interest paid on certain home loans

Summary

This section concerns “mortgage interest relief” (that is, the relief given for interest paid by an individual on a loan used for the purchase, repair, development or improvement of his/her sole or main residence or of the sole or main residence of his/her former or separated spouse, civil partner or of a dependent relative). The section identifies the type and amount of interest which qualifies for relief and grants that relief directly as an expenditure-based relief.

By virtue of section 458, the general provisions relating to the allowances, deductions and reliefs set out in Chapter 1 of Part 15 apply for the purposes of this section. These include the need for a claimant to make a return of his/her total income on the appropriate form and to formally claim relief under this section. They also include provisions governing the details to be included in a claim, the declaration which is required to be made, the manner in which the relief is to be given, the income on which the relief is to be allowed and the rate of tax at which repayments are to be made.

The following tables illustrate the rates and ceilings applicable for the tax years 2007 to 2020 inclusive (i) for qualifying loans taken out between 1 January 2004 and 31 December 2012 and (ii) for qualifying loans taken out by individuals to purchase their first qualifying residence during the period 1 January 2004 to 31 December 2008 to which the 30% rate of relief applies.

First Time Buyer

Non First Time Buyer

Loans taken out 2004 – 2012

Loans taken out 2004 – 2012

Year

Rate

Ceiling

Rate

Ceiling

2007

20%

€16,000 Married/Widowed

20%

€6,000 Married/Widowed

€8,000 Single

€3,000 Single

2008

20%

€20,000 Married/Widowed

20%

€6,000 Married/Widowed

€10,000 Single

€3,000 Single

2009

25% year 1 & 2, 22.5% year 3, 4 & 5, 20% year 6 & 7.

€20,000 Married/Widowed
€10,000 Single

15%

€6,000 Married/Widowed
€3,000 Single

Note:
Ceiling apportioned Jan to Apr and May to Dec 2009 only

Note:
Ceiling apportioned Jan to Apr and May to Dec 2009 only

2010 – 2017 With effect from 2011 relief extended to include Civil Partners/Surviving Civil Partners

25% year 1 & 2, 22.5% year 3, 4& 5, 20% year 6 & 7.

€20,000 Married/Widowed
€10,000 Single

15%

€6,000 Married/Widowed
€3,000 Single

2018

25% year 1 & 2, 22.5% year 3, 4 & 5, 20% year 6 & 7.

€15,000 Married/Widowed/Civil Partners/Surviving Civil Partner
€7,500 Single

15%

€4,500 Married/Widowed/Civil Partners/Surviving Civil Partner
€2,250 Single

2019

25% year 1 & 2, 22.5% year 3, 4& 5, 20% year 6 & 7.

€10,000 Married/Widowed/Civil Partners/Surviving Civil Partner
€5,000 Single

15%

€3,000 Married/Widowed/Civil Partners/Surviving Civil Partner
€1,500 Single

2020

25% year 1 & 2, 22.5% year 3, 4 & 5, 20% year 6 & 7.

€5,000 Married/Widowed/Civil Partners/Surviving Civil Partner
€2,500 Single

15%

€1,500 Married/Widowed/Civil Partners/Surviving Civil Partner
€750 Single

Loans taken out between 1 JANUARY 2004 – 31 DECEMBER 2008 to buy First Qualifying Residence (see note below)

Year

Rate

Ceiling

2012 – 2017

30%

Years 1 – 7
€20,000 Married/Widowed/Civil Partners/Surviving Civil Partner
€10,000 Single

Year 8 et seq.
€6,000 Married/Widowed/ Civil Partners/Surviving Civil Partner
€3,000 Single

2018

30%

Years 1 – 7
€15,000 Married/Widowed/Civil Partners/Surviving Civil Partner
€7,500 Single

Year 8 et seq.
€4,500 Married/Widowed/ Civil Partners/Surviving Civil Partner
€2,250 Single

2019

30%

Years 1 – 7
€10,000 Married/Widowed/Civil Partners/Surviving Civil Partner
€5,000 Single

Year 8 et seq.
€3,000 Married/Widowed/ Civil Partners/Surviving Civil Partner
€1,500 Single

2020

30%

Years 1 – 7
€5,000 Married/Widowed/Civil Partners/Surviving Civil Partner
€2,500 Single

Year 8 et seq.
€1,500 Married/Widowed/ Civil Partners/Surviving Civil Partner
€750 Single

NOTE: The 30% rate of relief is available in respect of interest paid on qualifying loans taken out during the period 1 January 2004 to 31 December 2008 used to purchase an individual’s (i) first qualifying residence, or (ii) second or subsequent qualifying residence but only where the first qualifying residence was purchased on or after 1 January 2004.

The following table illustrates the percentage of qualifying interest allowable in respect of a qualifying loan for the tax years 2007 to 2020 inclusive.

Year

Qualifying interest paid

Up to and including 2017

100%

2018

75%

2019

50%

2020

25%

Tax relief at source (TRS) for mortgage interest relief applies from 1 January 2002 – see section 244A.

Details

Definitions

(1)(a)Qualifying interest” in relation to an individual and a year of assessment means –

  • as respects a year of assessment before 2018, the amount of interest paid by the individual in respect of a qualifying loan, and
  • as respects the years of assessment 2018, 2019 and 2020, the amount of qualifying interest is reduced to 75 per cent, 50 per cent and 25 per cent respectively of the amount of interest paid by the individual in respect of a qualifying loan.

A “qualifying loan” is a loan (which includes any arrangement under which interest is payable) used solely to buy, repair, develop or improve a qualifying residence or a loan used in paying off a loan used for such a purpose.

A “qualifying residence” is the sole or main residence of —

  • an individual,
  • a former or separated (that is, separated under a court order or by deed of separation or separated in such circumstances that the separation is likely to be permanent) spouse or civil partner of the individual,
  • a dependent relative of the individual. A dependent relative, in relation to an individual means any of the persons mentioned in paragraph (a) or (b) of subsection (2), or in paragraph (a) or (b) of subsection (2A) of section 466 in respect of whom the individual is entitled to a tax credit under that section.

The residence must be situated in an EEA state and must be a building or part of a building suitable for use as a dwelling and includes any garden attached to the building.

EEA State” means a state (including the State) which is a contracting party to theEEA Agreement.

EEA Agreement” means the Agreement on the European Economic Area signed at Oporto on 2 May 1992, as adjusted by all subsequent amendments to that Agreement.

Relievable interest for years of assessment up to and including 2017

relievable interest” is the amount of interest paid by an individual in a year of assessment in respect of a qualifying loan on which relief is given. The amount of relievable interest for the years of assessment up to and including the year 2017 is:

  1. in the case of a jointly assessed married couple, a widowed person or a surviving civil partner – the qualifying interest, or, if less, €6,000.
  2. in the case of a single person – the qualifying interest, or, if less, €3,000.

Notwithstanding the preceding provisions, for the first 7 years for which interest relief under this section is due, the amount of relievable interest for the years of assessment up to and including the year 2017 for loans taken out between 1 January 2004 and 31 December 2012 is:

  1. in the case of a jointly assessed married couple, jointly assessed civil partners, a widowed person or a surviving civil partner – the qualifying interest, or, if less, €20,000.
  2. in the case of a single person – the qualifying interest, or, if less, €10,000.

(1)(b) In the case of a person assessed under section 1017 or section 1031C, qualifying interest paid by the person’s spouse or civil partner is treated as having been paid by that person if the spouse or civil partner would have been eligible for relief in respect of that payment had he/she been assessed to tax under section 1016 or section 1031B (assessment as single persons).

(1)(c) The 7 year period in which enhanced relief may be obtained (i.e. first time buyer relief) is reduced by 1 year for each year in which the individual was entitled to relief.

(1A)(a) Mortgage interest relief is abolished with effect from 1 May 2009.

(1A)(b) Notwithstanding this abolition, relief will continue to be available for the tax years 2010 to 2020 inclusive in respect of qualifying interest paid on loans taken out between 1 January 2004 and 31 December 2012.

(1A)(c) The recycling of old loans by individuals is prohibited (by way of taking out of new loans to repay existing loans). However, the interest on that part of the new loan used to pay off an old qualifying loan may still qualify for tax relief if the interest paid on the old loan (had it not been repaid) would qualify for tax relief.

(1A)(d) The ceilings on interest relief for non-first-time buyers for the tax year 2009 only are apportioned as to the periods 1 January 2009 to 30 April 2009 and 1 May 2009 and 31 December 2009.

The relief

(2)(a) & (b) Mortgage interest relief is given by means of a reduction in income tax. A taxpayer’s income tax is reduced by a sum equal to the “appropriate percentage” of the relievable interest.

(2)(a)(i) The “appropriate percentage”, for loans taken out between 1 January 2004 and 31 December 2012, is:

  • For first time buyers relief is available @ 25% for years 1 and 2, @ 22.5% for years 3, 4 and 5 and @ 20% for years 6 and 7.
  • For non-first time buyers relief is available @ 15%.

(2)(a)(ii) For individuals who purchased their first qualifying residence on or after 1 January 2004 and on or before 31 December 2008, (or second or subsequent qualifying residence where the first qualifying residence was purchased during that period) relief is available at 30%.

Bar on deducting interest from income

(2)(c) Interest qualifying for relief under this section is (except for the purpose of section 188 (age exemption) not deductible in calculating total income.

Relief where one spouse or civil partner is a previous claimant

(3) The benefit of the enhanced relief for the first 7 years of entitlement is not lost completely in the case of a married couple or civil partners where one partner was previously entitled to mortgage interest relief. Where this happens, the interest relief, other than the additional relief that would be allowable in the case of a first-time buyer, is treated as given equally to both spouses. The additional relief is then reduced by one-half and given to the spouse or civil partner who had not previously obtained mortgage interest relief.

Example:

Assume mortgage interest totalling €11,000 is paid by a married couple or civil partners one of whom was previously entitled to mortgage interest relief.

  1. €6,000 relief (the maximum normally available to non-first time buyer married couples or civil partners) is divided equally between the spouses/civil partners i.e. €3,000 each.
  2. The additional €5,000 that would be available if they were both first-time claimants is reduced by 50% to €2,500 and given to the spouse/civil partner who had not previously been given mortgage interest relief. In total, therefore, the relievable interest for this couple is €8,500 [€3,000+ €3,000+ €2,500].

Artificial loans

(4) A measure is included to prevent abuse of the relief by the artificial creation of loans in relation to a dwelling. Interest on a loan, which would otherwise be a qualifying loan, is not eligible for relief in certain circumstances. These circumstances include loans applied in —

  • the purchase of a residence from a spouse or civil partner,
  • the repurchase of a residence previously disposed of,
  • the purchase of a residence from a connected person for more than its actual value.

This rule does not to apply in the first two sets of circumstances mentioned above where a husband and wife or civil partners are permanently separated.

Purchase of new residence before sale of old residence

(5) A measure of extra relief is provided to cater for the situation of a person changing house who buys or otherwise acquires a new sole or main residence before disposing of the old sole or main residence. It may be that both houses are on mortgage and that there is an overlapping period during which interest is being paid on both loans. If it can be established that it was, from the outset, the person’s intention to sell the former residence and that the person has been taking all reasonable steps to do so, the former residence is to be treated as a qualifying residence under the section and the interest on the loan outstanding on that property will rank for tax relief under this section accordingly. The maximum period for which this additional relief will be given is 12 months from the date the new sole or main residence was acquired. This additional relief is subject to the overall restrictions on the amount of interest qualifying as relievable interest.

Retention of relief in case of death

(6) The position of a deceased person’s spouse, civil partner or dependent relative is safeguarded. Where the interest is paid by the personal representative of a deceased person, or by trustees under the person’s will, on a loan which would be a qualifying loan under the section, the interest is eligible for relief.

Certain loans taken out in 2012 and 2013

Interest relief is available for the tax years 2013 to 2020, in respect of interest paid on a loan taken out and used by an individual;

(7)(a)
  • on or after 1 January 2012 and on or before 31 December 2012 to purchase a site on which his or her home is to be constructed; or
(7)(b)
  • on or after 1 January 2012 and on or before 31 December 2013 to construct the said home on that site.

(8) Interest relief is available for the tax years 2013 to 2020, in respect of interest paid on a loan for which loan approval in writing was in place on or after 1 January 2012 and on or before 31 December 2012; and

(8)(a)
  • part of the loan was used in 2012 by that individual to repair, develop or improve his or her home, and
(8)(b)
  • the balance of the loan was used in 2013 by that individual to repair, develop or improve his or her home.

(9) This subsection deems the loans in subsection (7) and (8)(b) to be qualifying loans taken out in 2012.

(10) Relief shall not be granted in respect of interest paid on any loan to which subsection (7) or (8) applies unless the required Planning Permission was granted on or before 31 December 2012 and such Permission has not ceased to exist.

(11) Relievable interest for years of assessment 2018, 2019 and 2020

The definition of ‘relievable interest’ in subsection (1)(a) is amended for the years of assessment 2018, 2019 and 2020 to substitute the ceilings on interest relief as follows:

Married, in a civil partnership, widowed, or a surviving civil partner

Single

Year

First time
buyer

Non-first time
buyer

First time
buyer

Non-first time
buyer

Before 2018

€€20,000

€€10,000

€€6,000

€€3,000

2018

€€15,000

€€7,500

€€4,500

€€2,250

2019

€€10,000

€€5,000

€€3,000

€€1,500

2020

€€5,000

€€2,500

€€1,500

€€750

Relevant Date: Finance Act 2020