Mortgage interest relief
In the United Kingdom (UK), mortgage interest relief, which is a tax deduction for the interest paid on a mortgage, used to be handled by the Revenue Commissioners. Since 2002, however, the tax relief is provided to borrowers by the mortgage lender. Mortgage lenders provide mortgage interest relief by reducing the monthly mortgage payment by the amount of tax the benefit the borrower is entitled to receive.
In 2009, some mortgage tax relief changes were made to the existing rules and conditions. This change limits the number of years that a first-time buyer can receive mortgage tax relief to seven years. Thus, beginning with the eighth year of the mortgage, the owner is no longer eligible for the mortgage tax relief benefit.
As of May 2009, mortgage tax relief is discontinued for home buyers that are not purchasing their first home. The change in the rules and regulations for mortgage tax relief also affects existing homeowners. If the mortgage is more than seven years old, then the tax relief benefit is no longer available.
As is the case with any tax relief programme, there are certain requirements that must be met for individuals to take advantage of the tax relief programme. First, the mortgage must be for the purchase of or home improvements made to a primary residence. The tax relief program is not available for the purchase of or improvements to a vacation home or an investment property.
There are also some restrictions on where the home is located and where the homeowner pays taxes. For example, if the primary residence is in Ireland, but the homeowner works and pays taxes to the UK, then the homeowner is not eligible for mortgage interest relief. The opposite is true, however, for primary residences in the UK where the homeowners work and pay taxes in Ireland. These homeowners are eligible for the mortgage interest relief programme.
There is a cap on the amount of relief a homeowner can claim, which is determined on a case-by-case basis and whether or not it is the first home purchase. The rate of relief a first-time homeowner can claim is 25 per cent of the interest portion of the mortgage payment for the first and second year of the mortgage. Years three through five only allow for 22.5 per cent of the interest portion of the mortgage to be claimed as tax relief. The last two years, years six and seven allow for a 20 per cent mortgage tax relief claim. A single first time home buyer is only allowed to claim up to £8,000 (€10,000), while a married or widowed first time buyer has a cap of £16,000 (€20,000).
The rate of relief a non-first time homeowner can claim is 15 per cent of the interest portion of the mortgage payment up to the first seven years of the mortgage. A single non-first time home buyer is only allowed to claim up to £2,500 (€3,000), while a married or widowed non-first time buyer has a cap of £5,000 (€6,000).
How to Apply
When a new mortgage is established, home buyers are required to complete and submit Form TRS1 with the Revenue Commissioners (www.revenue.ie or call 1890 46 36 26). You can also obtain this form from your mortgage lender.