In my Budget Statement on 1 December 1999, I indicated that I was proposing to move, with effect from 6 April 2001, to a system of tax relief at source in respect of both medical insurance premiums and mortgage interest payments.
Deduction at source under these new arrangements will mean that the consumer will pay a net amount – after relief at the standard rate of income tax – to a medical insurer or a mortgage provider as the case may be. For example, if a premium of £100 is payable to a medical insurer such as the VHI or BUPA, the taxpayer will, from April 2001, obtain tax relief on that premium at source by making a payment of £78 instead of £100. The medical insurer will then claim a refund of £22 – representing the amount of the tax relief – from Revenue. The position will be similar for mortgage interest
The proposed arrangement will simplify the tax system by minimising paperwork and form-filling for taxpayers – while maintaining the full tax value of the relief. In the context of changing over to the new tax credits system, a reduction in the number of reliefs that appear on a tax-free allowance certificate will make it easier for taxpayers to comprehend the new system. Above all, relief at source will provide the relevant relief to the taxpayer as and when he or she makes a premium or mortgage interest payment.