Relative value of TRS for non-FTBs after year 8...?

[DrMoriarty]

With apologies for all the [broken link removed] , two quick questions...

(a) If the TRS ceiling for a married couple is €5,080, what is the optimal loan amount to which a standard capital-and-interest repayment mortgage on a PPR (currently fixed @3.45%) can be reduced and still net the maximum useful tax relief (for a single-salary couple, wage-earner paying income tax @42% marginal rate)?

(b) The €5,080 quoted above is for non-FTBs. Tbph, I'm not 100% sure whether or not I still am one, for TRS purposes? — or whether it makes a difference, 12 years on? Our original (1994) mortgage with EBS was for the FTB purchase of our own home; this was subsequently rate-tarted from EBS to BoS to NIB, each time with a top-up — once for a deposit on a separate property investment, once to fund improvements to the PPR (I've only claimed TRS on the portion of the mortgage related to the PPR, obviously). With SSIA and other investments maturing, I now need to decide how much of the outstanding €91K mortgage balance I should clear, without losing out on TRS? (I already cleared the non-PPR element by way of a once-off capital repayment, so the total balance is now PPR-related and therefore TRS-eligible — I presume..?)

Thanks in advance for any advice you can offer...

 

[ClubMan]

Re: TRS for non-FTBs after year 8...?

(a) If the TRS ceiling for a married couple is €5,080, what is the optimal loan amount to which a standard capital-and-interest repayment mortgage on a PPR (currently fixed @3.45%) can be reduced and still net the maximum useful tax relief (for a single-salary couple, wage-earner paying income tax @42% marginal rate)?

Whatever loan means that you're paying at least €5,080 in interest. You should be able to figure it out using Karl Jeacle's mortgage calculator. For example €216K @ 3.45% fixed over 20 years is just hitting the TRS limit for interest (and going below it after year one).

(for a single-salary couple, wage-earner paying income tax @42% marginal rate)?

These details are irrelevant to TRS.

(b) The €5,080 quoted above is for non-FTBs. Tbph, I'm not 100% sure whether or not I still am one, for TRS purposes? — or whether it makes a difference, 12 years on?

FTB rates of TRS only apply in the first 7 years of the mortgage used to purchase one's first PPR. Top-ups don't "restart" the clock.

To be honest I would not get too fixated on TRS as the benefits are marginal in the greater scheme of things. Even after TRS the mortgage repayments are still a cost to you (just less 20% of up to €5,080 p.a.). If the aim is to reduce overall mortgage costs then just concentrate on reducing/clearing the mortgage. Like many tax credits/reliefs there is no point in incurring expenses just so that you can claim them.

once for a deposit on a separate property investment

...

I already cleared the non-PPR element by way of a once-off capital repayment

Why did you do this when 100% of the interest on this component could be set against rental income which should be much more significant than owner occupier mortgage interest relief!?

 

[DrMoriarty]

Re: TRS for non-FTBs after year 8...?

Thanks, ClubMan,

To take the points in reverse order —

Why did you do this when 100% of the interest on this component could be set against rental income which should be much more significant than owner occupier mortgage interest relief!?

Because it was to 'speculatively' purchase a site w/o planning permission, outside Ireland, and against which no lender (?) would have advanced me an interest-only mortgage. As rental income wasn't going to enter the equation, I figured the only/best way to finance it was to temporarily release equity on the PPR, and then subsequently clear that part of the loan.

To be honest I would not get too fixated on TRS as the benefits are marginal in the greater scheme of things. Even after TRS the mortgage repayments are still a cost to you (just less 20% of up to €5,080 p.a.). If the aim is to reduce overall mortgage costs then just concentrate on reducing/clearing the mortgage. Like many tax credits/reliefs there is no point in incurring expenses just so that you can claim them.

I take that point entirely... thanks!

FTB rates of TRS only apply in the first 7 years of the mortgage used to purchase one's first PPR. Top-ups don't "restart" the clock.

So this means that for Revenue's purposes, our original loan no longer attracts FTB rates of relief, in any case? i.e. I have no (or precious little) reason not to clear the entire mortgage at the first available opportunity?

You'd be confirming my (uneducated) gut instinct, here — it's just that I had memories of various advice given to me over the years to the effect that 'some debt is good, etc.', from a tax-efficiency point of view. My wife has no taxable income, and I'm on 42%, so — particularly post-individualisation — any legitimate strategy that lowers my tax liabilities has to be considered..! From what you're saying, the benefits of TRS would, in my case at least, be significantly outweighed by the interest savings to be had by clearing the debt altogether? I haven't yet had an annual statement since the last move, but I guesstimate the interest portion of my €91K mortgage to be in the region of €3,120pa. 20% of that is €624, which is indeed a small consideration in the 'greater scheme of things'...

 

[ClubMan]

Re: TRS for non-FTBs after year 8...?

Because it was to 'speculatively' purchase a site w/o planning permission, outside Ireland, and against which no lender (?) would have advanced me an interest-only mortgage. As rental income wasn't going to enter the equation, I figured the only/best way to finance it was to temporarily release equity on the PPR, and then subsequently clear that part of the loan.

Fair enough.

So this means that for Revenue's purposes, our original loan no longer attracts FTB rates of relief, in any case?

Why would it given that it's 12 years old?

i.e. I have no (or precious little) reason not to clear the entire mortgage at the first available opportunity?

All other things being equal (e.g. the non FTB TRS not being significant to you and assuming that you don't have higher cost debts that demand more urgent attention or that you won't borrow at higher than mortgage rates once the mortgage is cleared) then I would say "yes". Others might argue that you should avail or mortgage rate credit for as long as possible. It's a bit of a judgement call really but if the means are available then I personally can't see why somebody should not aim to be debt free.

You'd be confirming my (uneducated) gut instinct, here — it's just that I had memories of various advice given to me over the years to the effect that 'some debt is good, etc.', from a tax-efficiency point of view.

I don't see how. TRS is only worth 20% of a certain amount of interest. You still have to pay the other 80% of the interest and also 100% of the capital that make up the monthly repayments out of your own pocket. Tax relief is reducing the impact on your money but there is still an impact. Where somebody has the means to clear a debt and no other use for it (and the other caveats above don't apply) then I can't see why they would not do so - especially just because by not doing so they benefit from some tax relief.

My wife has no taxable income, and I'm on 42%, so — particularly post-individualisation — any legitimate strategy that lowers my tax liabilities has to be considered..! From what you're saying, the benefits of TRS would, in my case at least, be significantly outweighed by the interest savings to be had by clearing the debt altogether?

You'd need to crunch the numbers but I certainly believe so.

 

[DrMoriarty]

Cheers again, CM.

I guess that old advice about 'some debt being good, etc.' dates back to a time when (a) mortgage tax relief was more significant for new FTBs, (b) income tax rates were higher and (c) I was still a relatively 'young fella' who might need to establish/maintain a good credit record with The Bank for the purposes of future borrowing... (much paternalistic harrumphing and twirling of moustaches).