Mortgage interest relief and extra pensioner tax allowances to be scrapped

Tuesday 20 October 2015

Mortgage interest tax relief and extra allowances for pensioners are going to be phased out under plans revealed this morning by the Treasury Minister.

Ministers want to cut the allowances – which will affect thousands of Islanders – and plan to start phasing them out at the end of next year.

The changes have been announced in the Budget, which has been published this morning.

That budget proposes measures that would increase tax revenue by £1.8 million next year – but it also sets up proposals that will go much further over the next few years.

Cutting both tax allowances would ultimately increase Islanders’ Income Tax bills by around £15 million per year, but ministers’ plans are to gradually phase them out over 12 years.

The phasing out would start in 2017, and no new entrants will be allowed to get the extra tax allowance for pensioners.

Treasury Minister Alan Maclean said that the proposals were designed to modernise the tax system – he said both the interest relief and pensioner allowance (worth £3,300 to a couple aged over 65) were brought in many years ago.

The Budget proposals also include:

- Duty rises on fuel, tobacco and alcohol.

- A rise in basic tax allowances to keep track of inflation.

- Increasing the allowance for child care from £12,000 to £14,000.

- Reducing the tax exemption for “benefits in kind” from £1,000 to £250.

Senator Maclean defended the move on mortgage interest relief, saying that it discriminated against people who didn’t own their own home, and inflated property prices.

He said: “It is not fair on those who cannot get into home ownership, who are in the rental sector. Interest rates are low at the moment and are likely to remain so in the medium term, so the impact is slightly less now than it would be if interest rates were high.

“Why did the UK get rid of it ten or 15 years ago? Because it distorts the housing market. It is not in the interests of those looking to get on to the housing ladder to push up house prices.

“That is the economic advice that we have been given – this is a legacy relief that other jurisdictions have dealt with and that we need to deal with.”