1. This clause changes the mortgage interest relief legislation in so far as it applies to life annuity loans (sometimes referred to as "home income plans"). For loans in existence on 9 March 1999 (and remortgages of such loans entered into after 27 July 1999) that still qualify for relief these changes will fix the rate of relief at 23 per cent and the limit at £30,000 with effect from 6 April 2000.

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2. Subsection (1) amends subsection (3) of section 365 of the Income and Corporation Taxes Act (ICTA) 1988. The amendments fix the qualifying maximum, which is currently £30,000, at £30,000 for 2000-01 and later years.

3. Subsection (2) amends subsection (1G) of section 353 of ICTA 1988. The amendment has the effect of fixing the rate of relief under section 353 at 23 per cent rather than at a rate equal to the basic rate of income tax.

4. Subsection (3) amends subsection (1A) of section 369 of ICTA 1988. The amendment has the effect of fixing the rate of relief under section 353 at 23 per cent rather than at a rate equal to the basic rate of income tax.

5. Subsection (4) is a commencement provision. The changes apply for 2000-01 and later years.

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6. Relief is available for interest on certain loans made to people aged over 65 and used to buy a life annuity if the loan is secured on their home. These loans usually form part of a home income plan. Interest on these loans qualifies for relief to the extent that the loan does not exceed the qualifying maximum of £30,000. Relief on these loans is given at the basic rate of income tax. 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.

7. Relief for life annuity loans was withdrawn in the 1999 Budget. However individuals with a qualifying loan in existence on 9 March 1999 continue to get relief so long as certain criteria are fulfilled. Holders of such loans may continue to receive relief if they enter into a remortgage so long as the new loan meets certain conditions.

8. These changes fix the rate at which relief is given on these loans at 23 per cent, rather than letting it fall with the basic rate of income tax to 22 per cent. The £30,000 limit is also being fixed so it no longer has to be reset each year in the Finance Act.

9. There are approximately 15,000 life annuity loans currently in existence which qualify for tax relief on the interest paid.

10. The tax relief is worth about £45 a month at a typical interest rate of 8.2 per cent. (8.2 per cent is used as this is typical of the fixed rates available for these loans.)

11. The total cost of the relief for life annuity loans is about £5 million a year.

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