THE REVENUE COMMISSIONERS have assured mortgage holders who may hope to have part of their mortgage debt written off that any gains they make will not be subject to tax.
The clarification comes after an accountancy body raised concerns that Irish tax law would inadvertently treat a mortgage write-down as a ‘gift’ – meaning it would become liable for capital acquisitions tax.
This would mean that any savings over roughly €15,000 would be subject to tax at 33 per cent – potentially leaving households with a tax bill for thousands if they were able to convince a bank to forgive part of their mortgage obligations.
However, the Revenue Commissioners have stepped in to clarify that if they are convinced of the “bona fides of particular arrangements”, households could be assured that they would not face an extra tax bill.
A spokeswoman said that once Revenue was satisfied about the legitimacy of a debt forgiveness programme, “we assume that financial institutions, in entering into such arrangements with customers in financial difficulties, do so solely for commercial reasons and are not intent on making a gift”.
In similar cases where debt restructuring or forgiveness programme was being pursued “on an arm’s length basis”, they would not be treated as if the mortgage lender was offering a ‘gift’ to a mortgage holder.
“Clearly, cases have, however, to be decided by reference to bona fides of the parties and the facts.
Please contact B.J. Dennehy & Company, accountants & business advisors, Limerick if you wish to review your tax position www.bjdennehy.ie/taxation