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In response to the Finance Bill 2023, a new Mortgage Interest Tax Credit initiative has emerged, providing a one-year relief for homeowners with eligible loans on their primary residence. In this article, we will explore the intricacies of the mortgage interest relief scheme and how we can assist you in maximising its benefits.
Qualifying Conditions of the Mortgage Tax Credit
The Mortgage Interest Tax Credit, established under the Finance Bill 2023, offers a one-year relief to taxpayers who made payments toward qualifying loans for their principal private residence in 2023. This credit aims to alleviate the tax burden on homeowners by providing relief based on the increase in interest paid from 2022 to 2023.
To qualify for the mortgage interest tax relief, individuals must have had a qualifying loan in both 2022 and 2023, with the loan interest increasing from the previous year. By December 31, 2022, the outstanding loan balance must be between €80,000 and €500,000. Eligible properties include the main home for 2023, a dependent relative’s main home, or a spouse’s home used for work.
Additionally, individuals can only apply if the property was;
- their principal private residence for 2023,
- the principal private residence of a dependent relative;
- or, the residence of a spouse which they used to attend their employment.
It should be noted that a property does not qualify for this tax credit if it is;
- a residential property not compliant with Local Property Tax (LPT) obligations,
- a residential property not compliant with planning permissions,
- or a residential property acquired from a connected party where the purchase price substantially exceeded the property value.
How much Mortgage Interest Tax Relief Can You Claim?
The tax relief is designed to lessen your income tax burden for the year 2023. This credit reduces the amount of income tax you owe, but it doesn’t apply to Universal Social Charge (USC) or Pay Related Social Insurance (PRSI).
If your income tax liability is less than the credit amount, you will not fully utilise the credit. However, you can receive a partial refund equal to your total income tax liability for the year. The relief is calculated based on the increase in interest paid from 2022 to 2023, with a cap of 6,250 per property qualifying for relief at the standard tax rate of 20%. This equates to a maximum tax credit of €1,250 per property.
Example:
For instance, if Liam had an outstanding mortgage balance of €200,000 by the end of December 2022, and paid €12,000 in interest in 2023 compared to €9,000 in 2022, he would be eligible for a Mortgage Interest Tax Credit of €600.
Claiming the Mortgage Interest Tax Credit:
To claim the credit, individuals must submit the Certificate of Mortgage Interest for 2022 and 2023, along with confirmation of the qualifying loan balance as of December 31, 2022. PAYE taxpayers can upload these documents via myAccount when completing their Income Tax Return form. Self-assessed individuals can utilise Revenue Online Service (ROS) and complete their annual Income Tax Return (Form 11).
For further information, visit Revenue.ie.
The mortgage interest tax credit offers homeowners a valuable opportunity to reduce their Income Tax liability for the year 2023. By understanding the eligibility criteria and claim process, individuals can leverage this initiative to ease their financial obligations. For assistance with taxation services and navigating the process seamlessly, reach out to our experienced team at Cronin & Co. Visit our website for more information.