Mortgage interest relief at source

Mortgage interest relief at source, or MIRAS, was a housing tax relief scheme in the United Kingdom from 1983 to 2000,[1] which was introduced as a way of reducing the amount of tax relief granted to mortgage borrowers. As its name suggests, it allowed borrowers to make mortgage repayments that already included tax relief on interest, instead of the traditional method of reclaiming the tax from the Inland Revenue.[2]

Tax relief on interest had been available since income tax was introduced in the early 19th century but in 1969 the then Chancellor of the Exchequer, Roy Jenkins, ended this tax relief for all loans except for business purposes or for home buyers. This meant that borrowers could no longer claim tax relief on, for example, the interest on bank loans or overdrafts.[3]

MIRAS built on the Option Mortgage Scheme of the 1970s, which had also offered reduced repayments as an alternative to reclaiming the tax relief. Its aim was to get over the problem that some borrowers on low incomes might not have sufficient income to claim back as much tax as higher tax payers. So according to a 1975 booklet describing the scheme at the time, it aimed to provide “benefits roughly equal to those that are available to people with higher incomes.”[4]

Like the Option Mortgage Scheme, MIRAS also aimed to deal with the problem of inequality between borrowers. In the mid-1970s the top rate of income tax was 83% on an income above £20,000 a year. Unlimited mortgage interest relief set against these high levels of tax meant that high-income borrowers could save large amounts of tax. At the same time, tax income for the government was significantly reduced by this tax relief. Thus, MIRAS was brought in as a way to reduce this loss of tax, as well as mitigating the inequality between home-owners and it achieved this by limiting the tax relief to be given through MIRAS to the basic rate of tax.[5]

In the 1983 Budget Geoffrey Howe increased the size of loans eligible for tax relief on interest from £25,000 to £30,000.[6] It had previously been announced that MIRAS would come into operation from April 1983.[7] Unmarried couples with joint mortgages could pool their allowances to £60,000, a provision known as Multiple Mortgage Tax Relief. This remained in place until the 1988 Budget, when Nigel Lawson ended the option to pool allowances from August 1988. Lawson later publicly expressed regret at not having implemented the change with effect from the time of the budget, as it is generally accepted that the rush to beat the deadline fuelled a sharp increase in house prices.[8]

In 1994 the rate of relief was reduced by Kenneth Clarke, with further reductions in 1995 and 1997. MIRAS was completely abolished in April 2000 by Gordon Brown, who argued it had become a middle class perk.[9]

There is a similar scheme in the Republic of Ireland, although not available for mortgages drawn down after 2013.[10]