TRS or Tax Relief at Source, is a mortgage related tax relief available to first time buyers. The working elements of it will be described in today’s post.
When you draw down a mortgage, if you are a qualifying applicant, then you can then apply for your TRS by downloading the TRS1p form from the Revenue website. After you send it off it will take a few weeks to process, and then you will get the years tax relief averaged out over the remainder of the year.
For example (we’ll show the calculations later) if your mortgage drew down in January but your TRS only kicked in during March then the relief would be paid as the average of 12 months over 9 months – say it was meant to be €300 per month (had it started in January) then you’d be getting €400 per month for the remainder of the partial year.
The actual way to calculate TRS is by looking at the amount of qualifying mortgage interest. The rules are that you can claim (remember this post is specifically for first time buyers) for the first seven years of your mortgage and the amount applicable is 25% of the allowable interest in year 1 & 2, then 22.5% in years 3, 4 & 5, finally years 6 & 7 are at 20%. The amount of interest you can apply this to is €10,000 per person qualifying.
So if two people buy a house and they are both first time buyers then the maximum mortgage interest allowable for TRS purposes would be €20,000.
It is important to note that if your mortgage interest is less than the maximum then the lower amount of interest is what applies in the calculation. We’ll do an example.
Joe and Tina buy a house for €250,000 with a 90% mortgage, they opt for a 5 year fixed rate of 4%. Their mortgage amount is €225,000 and at 4% that means they will pay €9,000 in interest for the year, this is well below their threshold, however, because it is below the threshold we do the calculations based on the actual interest paid rather than on the maximum.
There are a few other examples, including those that would apply to qualifying non-first time buyers on the Revenue website you can check them out here.