Every so often, something comes across your radar that makes you sit up and go “what?”. This week was one of those occasions, as it emerged that tens of thousands of Irish homeowners are choosing not to seek up to €1,250 in tax relief that is sitting there waiting for them.
The mortgage interest tax credit was introduced by then minister for finance Michael McGrath in last year’s budget to help ease some of the pain for homeowners after the European Central Bank raised interest rates a record 10 times in succession in 2022 and 2023. It offers homeowners up to €1,250 in tax relief to set against their rising mortgage interest bills.
It was supposed to be a one-off measure but Mr McGrath’s successor, Jack Chambers, extended the relief for a further year in the budget he announced at the start of last month. That means that if you qualify for both years, you could claim up to €2,500.
On the basis of figures presumably supplied by the Central Bank or the Revenue Commissioners, Mr McGrath estimated that as many as 208,000 homeowners could benefit from the tax credit. That’s a financial handout from Government of up to €260 million if all those people were to be eligible for the maximum award – or €520 million now that the measure has been extended for another year.
But, according to figures published earlier this week, just over one in eight households targeted by the relief have actually applied for it.
My colleague Conor Pope reported that by the end of last month, more than a year after it was announced, just 26,859 people had sought the relief, just under 13 per cent of those the Department of Finance had expected to qualify.
You can see why the Ministers might be scratching their heads. Reports last year consistently highlighted the plight of mortgage-holders, many of whom were paying up to €4,000 more a year in mortgage repayments and who were clearly feeling the squeeze on their family finances. Yet, when offered some relief, more than 180,000 have effectively turned their noses up at it.
On the basis of Revenue figures, we know that the average relief secured by those who did apply was €670.
Any Government Minister would give their teeth for a kitty of more than one-quarter of a billion euro to promote initiatives in their area. But apparently hard-pressed homeowners just don’t want this cash. Incredible? Absolutely. So what is going on, how can you find out if you are eligible and how do you go about getting the money?
Who qualifies?
Given that so many families are still struggling with prices for goods and services that are the legacy of the cost-of-living crisis, it cannot really be that people don’t need the money. A small percentage of them maybe, but no more than that.
That leaves only two explanations: either people are not aware of a scheme that has been fairly heavily promoted, or they are put off by the steps they need to take to secure their money. I personally have no real idea which it is but let’s try to demystify things.
First up you need a “qualifying loan”, so what is this?
It is a mortgage on a principal private residence – so a family home, not an investment property – used by you, a dependent relative or a spouse who needs to live elsewhere for their employment. It must have been bought at the market price.
In addition, your home must comply with all planning permissions and be up to date with local property tax payments.
You need to have taken the loan out in 2022 or before and still have been paying it back in 2023 (and 2024 if you intend to apply for this year). Finally, the outstanding balance on the loan needs to have been somewhere between €80,000 and €500,000 at the end of 2022.
As this is a tax credit against income tax, you clearly need to have paid – or be liable to pay – income tax for the year in which you are claiming. The relief is assessed on the difference in your mortgage interest bill last year or this year compared to what you paid in 2022, so naturally it will not apply to people who have been on a fixed-rate mortgage over that time. However, if you came off or moved on to a fixed rate in 2023 or 2024, you will likely be eligible.
How much can you get? The credit is granted at 20 per cent against any increase in your mortgage bill up to €6,250.
So, if your mortgage bill in 2023 was €6,000 higher than in 2022, you will get the relief at 20 per cent – ie a €1,200 tax credit. If your mortgage interest bill was €8,000 higher, you are capped at the €6,250 and get the €1,250. If your interest bill was just €2,000 higher, you will get €400 in your credit – ie one-fifth/20 per cent of the increase.
If you are looking at whether you qualify in 2024, the same rules apply and, again, you are measuring what you pay in mortgage interest bills this year against what you paid in 2022, not against last year.
If you finished your mortgage before the end of last year, or indeed, this year, you are still eligible for a pro-rate tax credit, and should apply. The same is true if you only took out your mortgage some time in 2022.
The bottom line is that everyone on a tracker or variable rate mortgage will qualify as long as they had somewhere between €80,000 and €500,000 outstanding on the loan at the end of 2022.
Claiming your relief
To claim your relief, you will need to file a tax return. This can be intimidating for some people – especially those who are in PAYE employment and are unfamiliar with returns. But it is really quite straightforward and is something we are all going to have to get used to as it is now required for claiming a whole raft of tax credits and reliefs – including claiming for health expenses which almost every family will inevitably have over a year, or the rent tax credit for those paying rent to a landlord.
The easiest way for PAYE workers to do this is online, by signing up to Revenue’s myAccount service. Once you have done this, Revenue will be able to point you to a Form 12 tax return that is “prepopulated” with your basic income and tax information as per your payslip and Revenue records, so you don’t have to go hunting for and calculating everything – although you do need to check to make sure the figures are correct.
Essentially when you sign in, you go to the PAYE services card – normally the first one on the screen that appears. You then go to Review Your Tax, click on the relevant year, request a Statement of Liability, which pops up immediately, and then click at the bottom of that page on the block that says Complete Income Tax Return.
Check your personal details, bank details and earning/tax figures as you are taken through the pages. When you get to the Tax Credits & Reliefs page, you can claim health expenses under the health tab and the mortgage interest tax credit under the You and Your Family tab. Your standard personal and PAYE credits will already have been prepopulated on the form so you do not need to worry about them. Simple, see.
It really is a very user-friendly service and not one that should deter anyone from getting money that they are due from the Government either to reduce your tax bill for the current year or as a refund for last year.
And if you are not sure exactly how much mortgage interest you paid in a year, ask your bank for a statement of mortgage interest. They will have sent this after year end anyway but they can certainly supply a copy of the statement if it is easier for you.
You can file a paper Form 12 but you will then have to get all the details for your income, tax, PRSI, USC etc and fill them in as well as the details of the reliefs or credits that you are claiming.
You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter, you can read it here.
