WITHDRAWAL OF MORTGAGE INTEREST RELIEF

Mortgage interest relief will be withdrawn from April 2000, the
Chancellor announced today. The change will remove a distortion in
the housing market and make the tax system fairer.

Relief will continue to be given on home loans at the current rate of
10 per cent until 6 April 2000 but will then be withdrawn. There will
be special provisions made for elderly people with home income plans.

The Inland Revenue will be discussing these changes with mortgage
lenders, home income plan providers and other interested parties to
ensure a smooth transition.

DETAILS

1. Mortgage interest relief is currently given at the rate of 10 per
cent on loans used for home purchase, subject to a #30,000 limit.
This will remain unchanged for qualifying loans until 6 April 2000
when the relief will be withdrawn.

2. The relief for interest on loans made, or treated as made, before
6 April 1988 for home improvements and the purchase or improvement of
homes for a dependent relative or a former or separated spouse of the
borrower will similarly remain at 10 per cent until 6 April 2000 when
that relief will also be withdrawn.

3. The relief given on loans to purchase life annuities is no longer
available for new loans with effect from today. However borrowers who
currently qualify for relief will continue to benefit from it for the
remaining period of the loan, even if that extends beyond 5 April
2000. For any one who is currently in the process of taking out such
a loan, relief will be still be due if the lender has before Budget
day agreed in writing to advance the loan, even if the loan is not in
fact made until after Budget day. In response to concerns raised
about existing home income plans, changes will also be made to enable
plan holders to move home or re-mortgage without losing relief.

4. The Chancellor has asked the Inland Revenue to undertake
discussions with mortgage lenders, home income plan providers and
other interested parties. This will ensure that they are aware of the
forthcoming changes and are able to inform the Inland Revenue of any
particular problems which these changes may cause them. The
discussions will focus on:

- Any measures the Inland Revenue could take to ensure the withdrawal
of mortgage interest relief causes minimal disruption to business.

- How relief for existing home income plans will be given after 6
April 2000.

- The deregulatory effects of withdrawing mortgage interest relief.

5. Mortgage lenders, home income plan providers and other
interested parties who would like to be involved in the discussions,
or who wish to comment on a specific issue, should write to:

Andrew Edwards
Inland Revenue
Capital and Savings Division
Room 135
New Wing
Somerset House
Strand
London
WC2R 1LB

6. A draft Regulatory Impact Assessment has been prepared and is
available from this same address or on the Inland Revenue website.
The final version will be published when the discussions with the
mortgage lenders come to a conclusion.

7. Legislation to implement the Chancellor's proposals will be
included in the forthcoming Finance Bill.

NOTES FOR EDITORS

1. Mortgage interest relief is available on loans used to buy a
borrower's home, subject to a limit on the size of the loan of
#30,000. The relief is estimated to cost #1.4 billion in 1999-2000.
Just under 11 million loans (19 million borrowers including joint
loans) currently qualify for relief.

2. People who are 65 and over who take out a loan, secured on their
home, to buy a life annuity can get interest relief on that loan at
the basic rate, again subject to a #30,000 limit. These loans
generally form part of a home income plan and are sold by specialist
plan providers.

3. Tax relief for mortgage interest has been available for a number
of years. However the MIRAS (Mortgage Interest Relief At Source)
scheme, which is operated by the mortgage lenders, was not introduced
until 1983. Under this scheme borrowers pay a reduced amount of
interest, reflecting the gross interest which they are liable to pay
less the tax relief due, and lenders recover the amount so deducted
from the Inland Revenue. Borrowers whose loans are not in MIRAS get
relief through a PAYE coding adjustment or in an assessment.

4. There have been a number of changes to the relief over the years.
In 1988 the following changes were made in respect of new loans used
for home purchase:

   - Relief on home improvement loans was withdrawn from 6 April
     1988.
   - Relief on loans used to buy a home for a former or separated
     spouse, or a dependent relative, was withdrawn from 6 April
     1988.
   - The "residence basis" was introduced, to limit the relief to
     #30,000 per residence rather than #30,000 per sharer, from 1
     August 1988.

5. Mortgage interest relief used to be given at the rate at which the
borrower paid tax but has been restricted over recent years:

   -   From 1991-92 relief was restricted to the basic rate.
   -   For 1994-95 the rate of relief for home loans was reduced to
       20 per cent.
   -   For 1995-96 to 1997-98 the rate of relief for home loans was
       reduced to 15 per cent.
   -   From 6 April 1998 the rate of relief for home loans has been
       reduced to 10 per cent.

6. The limit for the relief has been #30,000 since the MIRAS scheme
was introduced in 1983.

7. In 1983-84 mortgage interest relief cost #2.8 billion. This rose
to #7.7 billion in 1990-91 but since then has fallen to its current
expected cost of #1.4 billion in 1999-2000.

8. Using current forecast interest rates, the withdrawal of mortgage
interest relief will yield #1,350 million in 2000-01. The continuing
cost of relief for home income plans after 6 April 2000 will be
approximately #10 million per annum which will reduce slowly as
existing plans come to an end.

9. For all loans currently within the MIRAS scheme, lenders will
adjust repayments to take account of this change. For other loans,
the change will be made either through a PAYE coding adjustment or in
an assessment.

10. At a typical current mortgage interest rate of 6 per cent a
borrower with a loan of #30,000 or more will pay around #3.50 a week
extra as a result of this change. Borrowers with loans of under
#30,000 will also face a smaller increase.

INLAND REVENUE PRESS OFFICE
Media enquiries to: 0171 438 6692/6706/7327
(Out of hours: 0860 359544)

Non-media enquiries to: 0171 438 6420/6425
(Office hours only)

Inland Revenue information is on the Internet:
www.inlandrevenue.gov.uk

# - pounds sterling

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