Wednesday 21 November 2012
Following considerable public interest and debate since the publication of the 2013 Budget Billet, the Treasury and Resources Department is clarifying its position in relation to the mortgage interest tax relief proposals in the Billet.
The 2013 Budget Report contains a proposition stating that with effect from 1 January 2014 tax relief will only be provided for interest payable on mortgages with a cap £350,000. This proposition is the continuation of a policy established in 2008, following a decision of the States of Deliberation in June 2006, that "interest relief should only continue to be provided on principal private residences of a modest value". Legislation was made to give effect to this decision in 2007 and it took effect on 1 January 2008. At that time a maximum value for mortgages to which interest relief should apply was set at £400,000.
Deputy Gavin St Pier, Minister for Treasury and Resources, said:
"The Treasury and Resources Department's thinking is that this current level of mortgage interest tax relief does not represent equity and fairness in the tax system. At the level of £400,000 it is effectively a tax subsidy for property ownership at the expense of the general taxpayer. Lowering the threshold to £350,000 in this way demonstrates our commitment to increased fairness. It will only affect around 200 mortgage holders in the higher income and mortgage level band, and our calculations estimate that they will lose around £40 per month in tax relief. This proposal will only take effect in 2014 and will not directly affect the 2013 budget, nor those mortgage holders' tax relief in 2013.
"In the Budget Report we clearly state that we believe, in the interest of fairness, that mortgage interest tax relief should eventually be phased out. However after the reduction to £350,000, the case for any further phased reductions in mortgage interest tax relief will be considered as part of the broader review of personal taxation, allowances and duties. Our position remains that if the review provides compelling evidence to the contrary, or the prevailing economic and fiscal conditions are not conducive, we will reconsider our position on further phased reductions. However if the review does recommend further phased reductions, it would be our intention to redistribute these savings in the form of other allowances for taxpayers in Guernsey."
The review of personal taxation and allowances will be undertaken by the Department and the States' Fiscal and Economic Policy Group in conjunction with the Social Security Department. This review will take a comprehensive look at all personal taxes, allowances and duties, including mortgage interest tax relief.
Deputy Gavin St Pier, Minister for Treasury and Resources, said:
"The 2013 Budget aims to ensure that the tax burden is appropriate and reasonable for all of Guernsey's taxpayers. The personal taxation review will make recommendations aimed at introducing more equity, fairness and sustainability into the personal tax regime. Whether those recommendations are about the removal or restructuring of existing taxes and allowances, or propose the introduction of new ones, is a matter for the review at this stage. But fair taxes for everybody in Guernsey will remain at the heart of Treasury and Resources' strategy.
"I should add that there will be no nasty surprises for Guernsey's mortgage holders, and that there are no plans to reduce the mortgage interest tax relief further. We have stated a view - we have not made a decision. We will now wait for the review to see if makes any recommendations on further changes to mortgage interest tax relief. All Guernsey mortgage holders and taxpayers will be able put their views into that process, and nothing will be decided until the end of that process."
Ends
Notes to editors
The figure of £40 per month is based on a sum of £50,000 (i.e. the difference between £350,000 and £400,000). With an interest rate of 4.8% per annum, this would equate to £2,400 per annum in interest. Tax relief at 20% on that amount is worth £480 per annum, and that equates to a monthly amount of £40.
