One of the key benefits introduced in last December’s Budget was the extension of mortgage interest relief for first time buyers.
Minister for Finance Michael Noonan also moved to help those in negative equity by increasing their mortgage tax relief and extending it until 2017.
Not all of this group are in negative equity though and for those select few, there is an obvious dilemma about moving. However, some of them can retain this status even if they are trading up or trading down but others will lose some of the benefits if they trade on.
Many first-time buyers (FTBs), and even a few mortgage advisors, don’t realise that FTB’s can continue to benefit from the first-time buyer tax advantages should they trade up from an apartment to a house or vice versa, and should they make that move within seven years of their first purchase.
Furthermore, many couples, where one partner bought before the marriage, don’t realise that the second partner may retain that first-time buyer status and thus extend tax relief when they move home.
However, some of them may lose out depending on the timing of the purchase of their second house.
For tax purposes there are five types of first time buyer situations:
Real first timers
Those who have never bought a house before and who buy this year are now entitled to the mortgage interest tax relief rate up to €20,000 for a couple or €10,000 for a single person. This is claimed at a rate of 25% in the first two years and 22.5% in years three to five and 20% in 2017.
Those who bought since 2009 and trade up or down within seven years of their first purchase and can continue to benefit from interest tax relief for the remainder of the seven years on the same terms as first time buyers.
In other words these do not lose their first-time buyer status.
Those FTB’s who first bought between 2006 and 2008 and traded down in 2009 can continue to benefit from interest tax relief for the remainder of the seven years on the same terms as first time buyers.
In other words these do not lose their first time buyer status but they would not be entitled to the 30% a year special rate.
Those FTB’s who bought a first house between 2004 and 2008 and then traded up within the same period can claim mortgage interest relief at 30% a year — and retain this special first-time buyer status until 2017 provided they remain in the second home.
If they trade up to a third home this year their tax relief drops to 15% but if they delay trading until next year they lose out on tax relief.
Marrying in to a home
Those couples where one partner may have bought on their own in 2009. Now that they have got married, this year they plan to move to a house which they are buying together.
She retains her first- time buyer status at the 25% declining rate which lasts for seven years until 2015 while he benefits from first-time buyer status at the 25% declining rate until 2017.
Close to expiry
But those whose seven year FTB status is close to expiring and who cannot avail of the 2004-2008 special status and are considering buying an alternative house need to consider whether they should do so before the end of this year.
Such a move would allow them to extend their tax relief until 2017 but at a lower rate of 15%.