The Revenue has warned investors that any attempt to defer payments of interest on residential investment property mortgages into next year to qualify for extra tax relief will not work. Any such action could result in the loss of the new entitlement announced in Budget 2002 to tax relief on interest accrued from January 1st, 2002, the Revenue said.
In Budget 2002, Mr McCreevy announced that interest costs on money borrowed to buy or repair rented residential accommodation would be allowed from January 1st, 2002, as a tax deduction against the rental income from the property. The relief will apply to mortgages on existing residential properties as well as properties bought after January 1st, 2002. But it will not be backdated to cover mortgage interest paid before January 1st, 2002.
One bank source reported a request from a customer to defer a payment due at the end of December into March 2002. Other financial sources said they expected to come under pressure from investors to "push out" some current year mortgage interest payments into 2002 to facilitate the claiming of extra tax relief. One source insisted his bank would see any such request as "against the spirit" of the Budget measures. "We would not entertain it," he said.
Interest on residential investment property mortgages is usually paid quarterly or annually in arrears. Details of how the new Budget provision will work will be set out in the forthcoming Finance Bill. The Revenue spokesman stressed the Bill would include anti-avoidance measures aimed at ensuring that only interest accruing from January 1st, 2002 is allowed for tax relief.
Mortgage interest tax relief on investment properties was removed in April 1998 in a move to cool down an overheated property market.
Along with a sharp increase in stamp duty on the purchase of residential investment property, the so-called Bacon measures discouraged investment in residential property and drove up rents. The measures in Budget 2002 are aimed at encouraging investors back into the residential property market.
