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Single mum is locked out of the mortgage tax credit

Family suffering the same cost of living pressures as everyone else is told they do not qualify for relief from surging interest rates

A single mother with two children has been denied the Government's one-off mortgage interest relief despite seeing her mortgage interest bill jump last year. Photograph: iStock

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Dominic Coyle
Sun Mar 24 2024 - 12:57

I believe that there is a design flaw in how the mortgage credit is being processed. I applied for the credit on behalf of my sister-in-law and submitted her mortgage interest certs through Revenue myAccount. Her Revenue 2023 statement of liability was issued but the credit was not applied by Revenue.

She did not pay tax in 2023 due to other personal credits. She has a single-parent child carer tax credit that negated the PAYE tax due in 2023

She had two calls with Revenue to tell her over the phone that it was rejected. This is a single mother of two children who is doing her best to pay her mortgage during a period of 10 rate increases in 18 months. The Government promoted this as a cost of living measure to help families in 2024. She, of all people, is who this credit should be targeted towards.

I do not think the interest relief should be based on your income or tax. It should be based on the increase of interest paid in one year compared to another. This scheme should not have gone through Revenue as it is not an income-based credit. Is there anything she can do at this point.

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Mr F.H.

You highlight a very unfortunate situation. As you point out, your sister-in-law sounds precisely like the sort of person that this tax credit was supposed to be helping. However, as it is framed, she does lose out.

When you say there’s a design flaw here, I think you might be wrong. It is certainly designed in a way that will mean it is absolutely no use to your sister-in-law but, as I understand it, the Government, or at least those drafting legislation on its behalf, designed it very specifically to be a tax credit which means it automatically (by design) rules out those who do not pay tax.

Tax credits and tax reliefs work in different ways. The situation is further confused by the Government calling this both a relief and a credit, and by the previous experience of mortgage interest relief when it applied between 2004 and 2021, where it was treated as a relief and not a credit.

Tax credits essentially reduce the amount of income tax you pay. Revenue applies them after your tax has been calculated so if there is no tax outstanding, the credit falls unused.

Tax reliefs on the other hand generally operate earlier in the calculation, reducing the amount of income tax is taxable in the first place or else making you eligible for a repayment of tax already paid.

A third way they operate is what used to happen the last time we had mortgage interest relief. In this case, the relief was applied at source by the lender to reduce the homeowner’s interest bill on the mortgage.

It can be easy to confuse the two. And, in this case, it seems the Government itself is none too clear about what it is doing as the measure was described as mortgage interest tax relief in Minister for Finance Michael McGrath’s budget speech and subsequently, when it fact it is constructed as a tax credit.

At the time, he said he was “acutely conscious of the impact of rising interest rates and mortgage costs on many households” and, as you say, presented the measure as part of a package of “cost of living” measures designed to ease the burden on hard-pressed families.

The 2023 Finance Act (no 2) – the legislation giving effect to those Budget 2024 measures – didn’t help by referring to “Mortgage Interest Relief” but then determining that it would be known as “mortgage interest tax credit”.

Even when he announced the scheme open for applications on January 31st by the Minister, it was referred to as mortgage interest relief.

In another sign that the Government is less than certain what it is proposing here, the Minister estimated back at budget time that 165,000 mortgage holders would benefit. By January 31st, that number had jumped by more than a quarter to 208,000 mortgage holders... but the Minister and his department did not upgrade the expected bill for the measure from the €125 million announced in the budget speech.

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But what counts is what is in the law. And section 13 of the Finance (no 2) Act 2023 adds a new section 473 C to the Taxes Consolidation Act 1997, which says:

“An individual (referred to in this section as the ‘claimant’) who proves that during the qualifying period he or she paid qualifying interest and makes a claim in that regard shall be entitled to a tax credit (to be known as the ‘mortgage interest tax credit’) equal to the lesser of:

(a) an amount equal to the appropriate percentage of the specified amount, and;

(b) the amount which reduces the claimant’s income tax to nil.”

That last bit is where your sister-in-law gets caught.

Someone may come back to make me wise on this but I do not see why the special once-off support for mortgage holders announced in the last budget could not have been applied in a similar manner. But it wasn’t.

As framed, the mortgage interest tax relief is available to homeowners who at the end of 2022 had a mortgage on their principal private residence (family home) with a balance of between €80,000 and €500,000 outstanding, and who were up-to-date with the local property tax bills.

It looked at the interest element of those homeowners’ mortgage bills in 2023 and measured it against what they had paid in interest in 2022. Homeowners were entitled to 20 per cent of the increase in their interest bill back up to maximum relief of €1,250.

Where the homeowner was not paying the mortgage for the whole of 2022 or 2023, the benefit was worked out pro rata.

I’m assuming from your reference to her mortgage interest certificates that she certainly qualifies in terms of facing higher mortgage interest charges and was not on the same fixed rate through this period.

But here’s the rub. In order to claim the relief, homeowners had to file a tax return for 2023 – even if they did not usually file a tax return as a PAYE taxpayer.

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This appears to have been a deliberate choice by Government because the more natural approach, as with mortgage interest relief in the past, would be to assess it purely against the mortgage interest, or the increase in mortgage interest - as done with previous mortgage interest relief schemes. They chose not to do this – meaning that your sister-in-law and anyone else not actively paying tax gets no benefit even though they are, if anything, more challenged by the increases in mortgage interest over the past couple of years.

I suspect they were simply working under the impression that any family juggling a mortgage tax would have exposure to income tax and decided that was the easiest and cleanest way to operate what is intended as a temporary once-off credit for last year. It does also fit with a pattern of trying to gently force more and more PAYE taxpayers into filing annual tax returns.

It possibly never crossed their mind that someone who would benefit from the measure – and who certainly finds themselves under cost of living pressure as a single mum of two suffering the same increase in mortgage rates as others – might not have an offsettable tax liability.

The bottom line here is that your sister-in-law did not pay income tax last year because she had offsetting tax credits as a result of her single-parent status. And because there is no outstanding tax bill after those credits are applied, there is nothing left against which to offset this mortgage interest tax credit.

You have already pursued some political channels. Given the wording of the law, I think that is the only approach that has any potential to address your sister-in-law’s situation but I would not limit yourself to Opposition figures. You are more likely to get action by pressing Government TDs, starting with those in your sister-in-law’s constituency.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice

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