It’s my belief that there’s a serious oversight in the way mortgage credit administration is carried out. Acting on my sister-in-law’s behalf, I submitted an application for the credit, including the evidence of her mortgage interest payments via the Revenue myAccount. Although she received her Revenue 2023 liability statement, the credit reward from Revenue was not applied.
In 2023, she was exempted from tax payments due to personal exemptions; in her case, the single-parent child care tax credit, which offset her PAYE tax obligations. Despite her strenuous efforts to stay atop her mortgage payments during a period marked by ten interest rate hikes in a year and a half, her request for credit was denied, a fact communicated in two phone calls from Revenue. It’s worth pointing out that the government touted this as a means to alleviate living expenses for families in 2024; it follows therefore that individuals like her should ideally be the primary beneficiaries of this credit scheme.
In my views, the criteria for interest relief shouldn’t hinge on income or taxation levels. Rather, it should be contingent on a year-on-year comparison of the increase in the total interest paid. The government’s choice of processing this scheme through Revenue was misguided since it’s not predicated on income. At this juncture, does she have any recourse?
Dear F.H,
Your case shines a light on the gargantuan flaw with this process. From what you’ve related, your sister-in-law represents the archetypical beneficiary whom this tax credit policy was intended to alleviate. That being said, the way it’s currently structured does her a disservice.
Your claim that the system has inherent defects could be misconstrued. Even though the system provides zero benefits to your sister-in-law as it stands currently, it’s been designed meticulously by the government or the legislative delegates to operate as a tax credit, thereby by default excluding non-taxpayers.
Tax reliefs, on the other hand, operate differently from tax credits. Adding to the chaos, the government has been indistinct in discerning between tax relief and tax credit. This is further complicated by experiences around the mortgage interest relief between 2004 and 2021, when it was regarded as a relief and not a credit.
Tax credits’ function to diminish the amount of income tax a person has to pay. The credits are applied after the total tax is calculated, so if no tax is remaining, the credit ends up being redundant.
Tax breaks generally function in the initial stages of tax computation, either lessening the gross taxable income or qualifying one for a tax refund. Another way they can work, reminiscent of previous mortgage interest relief policies, is that the tax relief is applied directly by the mortgage lender, thereby reducing the interest outstanding on the home loan.
Despite their apparent similarity, it’s essential not to confuse the two types of tax incentive. Furthermore, it seems that even the government is undetermined about its decision as the scheme found its way into Finance Minister Michael McGrath’s fiscal report as mortgage interest tax relief, even though it is designed as a tax credit.
The minister, aware of the escalating interest rates and mortgage costs affecting several households, introduced the relief scheme as part of several other measures to alleviate the financial stress on struggling families. However, confusion arose when the 2023 Finance Act (no 2) mentioned the term “Mortgage Interest Relief”, deciding in the end to term it as “mortgage interest tax credit”.
Interestingly, even when the application was officially announced by the Minister on January 31st, the term mortgage interest relief was used. Showing signs of government indecisiveness, the Minister had initially approximated that around 165,000 mortgage bearers would benefit from the scheme. Nonetheless, by January 31st, this figure had increased to 208,000, with no updates regarding the estimated cost of the initiative from the original €125 million.
The decisive factor, however, is the legislative enactment. Section 13 of the Finance (no 2) Act 2023 stipulates clause 473 C in the Taxes Consolidation Act 1997, which allows any individual (referred to as the ‘claimant’) that can show legitimate interest payment during the qualifying period to claim a tax credit (termed ‘mortgage interest tax credit’) to the lesser of a designated percentage or the predetermined total.
The fine print that reduces a claimant’s income tax to zero is where the disadvantage lies for your sister-in-law. I can’t see why the unique one-time mortgage assistance announced in the recent budget couldn’t have mirrored this, but it wasn’t designed that way.
Instead, the tax relief on mortgage interest was structured for homeowners who, by the close of 2022, had an ongoing mortgage on their primary home with an outstanding balance from €80,000 to €500,000 and were current with the local property tax payments.
The calculation took the 2023 interest part of these homeowners’ mortgage repayments into account, comparing it to the interest paid in 2022. Homeowners could reclaim 20% of the increase in interest expenses, up to a maximum benefit of €1,250. For those who hadn’t paid the mortgage in full for 2022 or 2023, the perks were adjusted accordingly.
Based on your mention of her mortgage interest certificates, it’s reasonable to expect that she’s eligible considering the rise in mortgage interest expenses, despite not maintaining the same fixed rate throughout this period.
However, the caveat is to obtain relief, even as a PAYE taxpayer, homeowners are obligated to submit a tax return for 2023—even if it wasn’t customary for them to do so.
This seems to be a calculated move by the Government, instead of adopting a more natural method of assessing it solely against the mortgage interest, or any increment in the mortgage interest – as was done in earlier mortgage interest relief schemes. The choice to not implement this method means that your sister-in-law and others who aren’t actively paying tax receive no benefits, despite being ostensibly more burdened by the rising mortgage interest in recent years.
Presumably, the assumption was anyone managing a mortgage tax would be liable for income tax, deeming this the most straightforward and efficient way to administer what is intended as a one-time, transient credit for last year. This decision also aligns with the trend to subtly encourage an increasing number of PAYE taxpayers to file annual tax returns.
Considering that your sister-in-law, a single mother of two tackling common living cost pressures, might not have a tax liability that can be offset had likely not entered their thoughts. This fact becomes evident given the benefit she would receive from the measure, especially with the same rise in mortgage rates impacting her, as it does everyone else.
Simply put, last year your sister-in-law evaded paying income tax. This was due to the application of offsetting tax credits, which she received due to her circumstance of being a single parent. With the tax credits covering her tax bill entirely, there was no remainder left that could be used to counterbalance the mortgage interest tax credit.
You have previously exhausted some political avenues. Based on the legislation’s exact phrasing, this does appear to be the only route that might bring positive changes to your sister-in-law’s scenario. Still, I wouldn’t suggest fixating only on opposing figures. To increase the likelihood of progress, it might be more useful to lobby Government TDs, ideally beginning with the ones representing your sister-in-law’s constituency.