Loan and mortgage interest tax relief

Interest tax relief

You can claim tax relief on loan interest payments for the:

• purchase or extension of your main residence
• purchase or extension of a commercially let property
• purchase of machinery and plant
• acquisition of a trade, partnership share or trading company

as long as you have paid the interest you have been charged in the year of assessment.

If you need help completing the interest tax relief section on your tax return watch our help video.

Filling out your personal tax return

Definition of an extension

An extension means something physically added onto the property.

This includes the construction of a:

• conservatory
• garage
• loft extension (if the roof line is extended)

Any part of a loan for home improvements or interior alterations can't be claimed.

Phasing out interest tax relief for your main residence

From the year of assessment 2017 the interest cap is reducing by £1,500 per annum until the interest relief is removed from the year of assessment 2026.

How interest relief on your main residence works

The interest is a deduction against your income at the marginal rate calculation of tax.

You can claim this tax relief for the purchase or extension of your main residence in Jersey.

• the property must be a house or a flat
• the relief is only available at the marginal relief tax rate calculation
• there is a capital restriction of £300,000
  
• any restrictions are calculated on the total borrowing, not on each individual loan
• you must live in the property on a full-time basis

You’ll only receive mortgage interest tax relief if your lender has a source of Jersey mortgage income or profits chargeable to tax in Jersey.

Interest paid on mortgages held by share transfer will be granted tax relief if the conditions above are met.

Example

You take out a loan for £350,000 with a Jersey bank to purchase your home in Jersey. The interest rate on your mortgage is 3%.

At the end of the year the bank sends you a certificate of interest paid (R62) showing interest charged and paid of £10,500 and a year-end capital balance of £345,000.

Interest relief will be calculated as follows:

£300,000 / 345,000 x £10,500 = £9,130

Interest relief that will not be given

Mortgage interest relief will also be restricted if:

• any part of a mortgage or re-mortgage that does not relate to the purchase or extension of your main residence in Jersey
• certain transactions between connected parties, eg spouses ‘selling’ a house with no mortgage to the other and taking out a mortgage in the process for the purpose of gaining interest tax relief, while spending the money elsewhere, will not qualify
• we’ll challenge any tax relief applications if the loan has an artificially inflated rate of interest on capital over £300,000

Interest tax relief for the purchase or extension of a let property

The interest can be claimed as an expense against the letting income on loans used for:

• buying land or property which will be commercially let
• extending a commercially let property

There is no capital restriction on the interest deduction.

Interest tax relief for business purposes

Interest tax relief will also continue to be given for interest incurred for the following purposes:

• interest on loans used entirely and exclusively for earning the profits of a trade, profession or vocation
• interest on loans used for acquiring capital items used by an employee wholly and exclusively in earning the profits and earnings of an employment or office
• interest on loans used for acquiring, in whole or in part, a trade, profession or vocation, or the share capital of a trading company, whether in Jersey or elsewhere