Dáil Éireann debate -
Tuesday, 20 Oct 1998

Vol. 495 No. 4

Written Answers. - Tax Allowances.

Gay Mitchell

Question:

200 Mr. G. Mitchell asked the Minister for Finance the proposals, if any, he has to introduce tax allowances to provide for separated or divorced persons who are paying maintenance and mortgages on homes where they are not in residence while also paying mortgages or rent on homes for their own use; and if he will make a statement on the matter. [19927/98]

Minister for Finance (Mr. McCreevy)

For the purposes of interest paid on certain home loans, a qualifying residence is a residential premises which is used as the sole or main residence of the individual or the former or separated spouse of the individual. Interest relief can therefore be claimed in respect of both the "old" and "new" properties.

The extent of interest relief due is governed by the basis under which the individual is assessed to income tax. The following examples illustrate this point.

Individuals who are divorced and have not remarried and individuals who are separated and taxed as single people can avail of tax relief up to £2,500 in respect of interest payments they make on qualifying residences, including that of a former spouse. An upper limit of £5,000 applies in cases where an individual was divorced and has now remarried and is jointly assessed to income tax with his spouse. The upper limit of £5,000 may also apply where an individual is separated but he-she and his-her separated spouse have opted for joint assessment.

Maintenance arrangements may provide for payments to a former or a separated spouse. The terms of the arrangement may provide, in respect of the "old" residence, either (a) that the individual making the maintenance payments, will pay the interest repayments directly, or (b) that the beneficiary will directly be liable to meet such payments.

In the case of (a), the individual making the payment will be regarded as having paid interest on a qualifying residence and can claim a deduction for that interest in addition to the interest he may pay on a "new" property, subject to the limit of £2,500.

In the case of (b), the total payment will be regarded as a deduction for income tax purposes for the person making a maintenance payment. It will be regarded as a taxable source of income in the hands of the beneficiary. However, the beneficiary may claim tax relief in respect of the interest paid on the qualifying residence.

However, a separated couple, who are not divorced, may opt to be taxed jointly as a married couple. If they opt for this, the maintenance arrangements are ignored for tax purposes and they are taxed as though they were still living together and taxed in accordance with section 1017, Taxes Consolidation Act, 1997. The effect of this is that they can claim interest relief on the upper limit of £5,000.

I have no proposal to alter the current arrangements in this area.