Clause 34 sets the limit on loans qualifying for mortgage interest relief at £30,000 for 1999-00 (the same as applies for 1998-99). The clause will have effect from 6 April 1999.

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The clause sets the limit ("the qualifying maximum") for mortgage interest relief on loans for home purchase, under sections 356A and 357(1) of the Taxes Act 1988, and for interest relief on life annuities loans, under section 365(3) of the Taxes Act 1988, at £30,000 for the year 1999-00.

The £30,000 limit applies to loans used by borrowers to buy their homes and also to certain loans used by elderly people to buy life annuities. Relief is available for interest paid on loans up to £30,000. Where a loan is greater than £30,000, relief is available only for interest on the first £30,000.

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The limit for mortgage interest relief has to be set every year by Parliament. This clause simply resets the limit at £30,000, the same limit as in 1998-99. The limit was imposed for the first time in 1974 at £25,000. It was raised to its present level of £30,000 in 1983.

Relief is currently available for interest on a loan used by the borrower to buy an interest in a property which is used as their only or main residence. Relief is also currently available 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. Most borrowers receive their relief through the MIRAS (Mortgage Interest Relief At Source) scheme, which is operated by the lenders. 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 an amount equal to the tax relief from the Inland Revenue. Borrowers whose loans are not in MIRAS get relief by way of an "income tax reduction" made through a PAYE coding adjustment or in an assessment.

Relief is available for interest on a loan to an elderly person used to buy a life annuity if the loan is secured on his or her home. These loans usually form part of a home income plan. The £30,000 limit also applies to these loans. Relief on these loans is given at the basic rate of income tax. Again, most borrowers receive their relief through the MIRAS scheme.

The estimated cost of mortgage interest relief and its value per month to a home buying borrower with a loan of £30,000 or more are:

The 1999-00 figures assume a typical mortgage interest rate of 5.5 per cent.

Average outstanding mortgage - about £39,400 in 1999-00.

Average new mortgages - about £51,300 for first-time buyers and £66,000 for other borrowers at the end of 1998.

Loans over £30,000 - over 90 per cent of new loans are for more than £30,000 throughout 1998.

Total loans - the number of loans of £30,000 or more is expected to be about 7 million in 1999-00, out of a total of 10.7 million loans eligible for relief.

The following table gives the number of beneficiaries of mortgage interest relief by range of total income for 1999-00.