Who benefits from Mortgage Interest Relief?

The Statistical Report of the Revenue Commissioners has a chapter on Income Distribution Statistics.  Within that Table IDS15 gives some details on the relief given for interest paid on home loans – Mortgage Interest Relief (MIR).  Here are the totals from that table.

The total amount of MIR allowed in 2010 was just under €280 million, with an average relief of €850 given to the 328,000 or so recipients.  The amount has fallen in recent years and was as high as €700 million in 2008 when the ECB rate peaked at 4.25%.  It has since fallen to 0.75%.

The final column shows that the amount of relief granted generally increases with income and the highest average going to those with an income over €275,000.  Although there are limits to the amount of relief that can be claimed, it is clearly a function of the size of the loan.   Those on higher incomes, on average, have bigger loans.

Around €20.5 million of relief is granted to Income Tax cases with an income over €100,000, though issues of jointly-assessed Income Tax returns, separately-assessed married couples and the tax case to which the relief deter definitive judgements.

It can be noted that at €279 million the amount of relief granted is less than the amount expected to the collected by the Local Property Tax this year (€250 million), and that even next year, when the full rate applies, the average MIR of €850 will be in excess of the property tax bill that these mortgaged home-owners will face.  MIR is due to be phased out by 2017.

Stamp Duty versus Mortgage Interest Relief

Here is a table of the amount of revenue raised from Stamp Duty on residential property and the amount of tax relief granted to residential mortgage holders for the past decade.

The figures for Stamp Duty are taken from here and relate only to Stamp Duty paid on residential property transactions, while the figures for mortgage interest relief are taken from here including the estimate for 2012, with a full-year 2011 figure here.  The amount of income tax relief granted to mortgage holders is equivalent to nearly 75% of the revenue received from Stamp Duty on residential property.

The two columns do not reflect the same groups of people but there is likely to be very significant overlap.  The Stamp Duty column will include duty paid by investment buyers who are not entitled to mortgage interest relief (but do get a separate relief).  If investors paid a quarter of the Stamp Duty and were omitted the sums of two columns would be almost identical.  The Mortgage Interest Relief column will include people who bought before 2002, though these will be smaller mortgages and many will have been repaid by the end of the period, and also first-time buyers who bought in the period in question but were exempt from Stamp Duty.

Although the Exchequer did collect significant revenue from the purchase of residential property by households in the last decade, the Exchequer has also lost significant revenue by awarding income tax relief for mortgage interest to households.

Stamped out

The poster boy of the tax boom from the last days of the Celtic Tiger was undoubtedly Stamp Duty.  Though typically associated with property transactions Stamp Duty is actually a collection of six separate duties (two discontinued).

1. Conveyances of lands, houses and other property, leases and mortgages
2. Transactions in Stocks and Shares
3. Companies Capital Duty (discontinued in December 2005)
4. Cheques, Credit cards etc.
5. Insurance and Miscellaneous
6. Levy on Certain Financial Institutions (2003-2005, discontinued)

Some details of the duties can be found in the Statistical Report of the Revenue Commissioners.  Stamp Duty went from being a relatively insignificant source of revenue bringing in a couple of hundred million in the 1990s to bringing in nearly four billion euro at the height of the property-fuelled boom in 2006.  Since then it has collapsed.

Of course all taxes rose during the boom, but the rise in Stamp Duty was disproportionate.  By 2006 Stamp Duty had risen nearly 1300% from its 1993 level, while total tax revenues had increased by less than 400%.  See graph here. Stamp Duty made up about 3% of total tax revenue in the mid-1990s, but reached almost 8% of total revenue in 2006. Graph here.
What is of some interest is the source of the Stamp Duty revenues.  The following graph shows the revenues from the six different forms of Stamp Duty. 

The source of the “bubble” is easily identifiable!  As a proportion of total Stamp Duty, revenue from the conveyances of land and property rose from and 45% of the total in the mid-1990s to over 80% in 2006.  By 2009 this had collapsed back to 33%.
The following graph gives the proportions of total Stamp Duty revenue that each of the four remaining duties have comprised since the early 1990s.  2009 was the first time that Stamp Duty on the conveyances of land and property did not generate the largest revenue.

The increase in insurance Stamp Duty is due to an increase in the duty on non-life assurance premiums from 2% to 3% and the introduction of a 1% duty on life assurance premiums.  Without these duty from land and property conveyances would still be ahead and overall Stamp Duty revenue would be down about €200 million.