Mortgage interest relief

Rules

For you to qualify for tax relief on mortgage interest repayments, the interest must relate to money that you have borrowed to purchase, repair or improve your sole or main residence. For example, you cannot claim mortgage interest relief for interest on a loan used to buy a holiday home or investment property, but you can claim it if the loan is to extend or improve your main home.

If you work and pay taxes in the UK (including Northern Ireland) but your sole or main residence is in the State, you can claim relief on the interest you pay on the mortgage. You will need to have a Personal Public Service Number (PPSN) in order to claim the relief.

Relief is also subject to upper limits, which will depend on your personal situation and whether you are a first-time buyer - see 'Rates and ceilings' for details.

Mortgage start date and entitlement to relief

Your entitlement to mortgage interest relief depends on the relevant start date, as follows:

• If you started paying the mortgage in 2003 or earlier, your entitlement expired in 2009.
• For a mortgage taken out between 1 January 2004 and 31 December 2012, your entitlement to relief will continue until the end of 2017.
• If you are a first-time buyer who bought a sole or main residence between 1 January 2004 and 31 December 2008, or paid your first mortgage interest payment in this period, the Finance Act 2012 provides for a special rate of mortgage interest relief of 30% for the tax years 2012 to 2017.
• If you took out a mortgage between 1 January 2012 and 31 December 2012, the Finance Act 2012 provides for the 2011 rates of mortgage interest relief to apply – it had been previously proposed to reduce them in 2012.
• No mortgage interest relief will be allowed for mortgages taken out after 31 December 2012.

Deadline for new mortgages in 2012

Your entitlement to mortgage interest relief was dependent on the loan being drawn down and used in the purchase, repair, development or improvement of your principal private residence in 2012. It was not necessary to have made the first repayment on the loan in 2012. Interest accrues on the loan from the date the loan is drawn down and this interest qualifies for mortgage interest relief even if the first repayment was made in January 2013.

‘Drawing down’ a mortgage refers to the transfer of the money from the mortgage lender to you or to your solicitor. The money must have been paid to the seller or builder by 31 December 2012 for it to be considered as used in the purchase, repair, development or improvement of your principal private residence in 2012.

Mortgage arrears and interest-only payments

While the legislation governing mortgage interest relief provides that the relief be granted based on the amount of interest paid, most lenders operate the relief based on the amount of interest charged to an account. This had little impact up to recently. However, in response to the growing incidence of mortgage arrears, it is intended that all lenders will operate on an interest-paid basis from the earliest possible date.

In the meantime, Revenue is working with mortgage lenders to identify accounts on which interest has not been paid for a period of 6 months or more. Tax Relief at Source (TRS) will be ceased on these accounts and will only be restored when 3 consecutive payments have been made and the borrower re-applies for the relief.

As regards interest-only arrangements, people who are only paying the interest portion of their mortgage are still entitled to TRS and will continue to get it if they meet the qualifying conditions.