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Mortgage interest tax relief to be phased out?

Mortgage interest tax relief to be phased out?

Wednesday 23 July 2014

Mortgage interest tax relief to be phased out?

Wednesday 23 July 2014

Mortgage interest tax relief could be scrapped entirely as part of a shake-up of property tax rules.

A consultation paper published along with the Budget last week has floated the idea of scrapping the Income Tax allowance that taxpayers on the marginal rate get for the amount of mortgage interest they pay.

Although attempts to scrap the allowance around ten years ago were scrapped after a hostile response from the public, the amounts available and the households eligible have been reduced through the “20% means 20%” tax reforms in 2007.

The paper says that there are no plans to withdraw mortgage interest relief overnight, or to close it off to new claimants, but they say it could be phased out in less than the 30 years that the UK is taking to get rid of it.

The paper, published by the Treasury department, says that the relief is artificially inflating house prices and that it’s costing the States between £12 million and £14 million per year. It also makes the point that it’s limited to those who can buy homes and doesn’t help those who rent.

The paper states: “Where there is a body of taxpayers who have recently purchased properties on the assumption that mortgage interest tax relief (MITR) will be available, withdrawing the relief too quickly could cause financial difficulties.

“At the same time, it would be unreasonable for anyone to assume that just because MITR is currently available, that it will always be available.

“No equivalent to MITR exists for those who cannot afford to buy, or who are not allowed to buy, and who are therefore required to rent their homes.

“In effect, this means that those on the lowest incomes and struggling the most to get on the housing ladder are subsidising the ownership of those who can afford to buy.”

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