To implement focused support for Latvian households whose mortgage interest have increased significantly recently, one of the suggested solutions is the inclusion of said payments to the list of justified expenses related to personal income tax for a specific period of time – 2023 and 2024, as mentioned in the project developed by the Ministry of Health.
The Ministry of Finance suggests creating a focused support programme for Development Finance Institution Altum (Altum) that would allow capitalising a portion of interest payments by attracting additional guarantees from Altum to reduce monthly payments. The ministry also suggests providing focused support as part of available social assistance measures.
In a letter sent to the Ministry of Finance and Bank of Latvia, Saeima’s Budget and Finance Committee invited assessing the situation on the financial market because of the rapidly growing EURIBOR interest rate.
As noted by the Ministry of Finance, in addition to the amount of justified expenses already in force – EUR 600 – mortgage interest payments made for housing of up to EUR 2000 per year could be included.
The aforementioned restriction may be implemented, considering information from the Bank of Latvia that the average interest payment per loan is EUR 164 a month. The average interest payment per borrower is EUR 151 a month.
The Ministry of Finance mentions that the aforementioned regulation would be applicable for mortgage loan payments performed starting with the 1st of January 2023. Regulations could be applied retroactively and would benefit taxpayers.
According to information from the Bank of Latvia, the total number of issued mortgage loans is 127 200, whereas the general number of people provided with mortgage loans is 138 600. The fiscal influence of this solution is evaluated at approximately EUR 47.6 million in the form of PIT repayments for a year.
The Ministry of Finance notes: taxpayers will be able to use justified expenditures only if they recover income taxable with PIT in the tax year. It is also important to keep in mind that taxpayers
recover only 20% of justified expenses
in the form of PIT returns.
In order to make the tax administration process as efficient as possible, it should be determined that credit institutions provide the State Revenue Service (SRS) with information on mortgage interest payments for housing made by natural persons during the tax year by the 1st of February of the post-tax year. If the mortgage is taken from a credit institution of another European Union member state or a state of the European Economic Area, the taxpayer must submit the documents confirming the mortgage interest payments for housing to the State Revenue Service on their own.
Mortgage interest payments on housing could only be included in eligible housing expenses in the current tax year and, like contributions to private pension funds and the payment of insurance premiums, could not be shared between family members or carried over to subsequent tax years.
The objective of Altum programme would be providing support to borrowers who are unable to pay interest payments in full due to the growing EURIBOR interest rates.
The proposed solution provides the opportunity for credit institutions to capitalise interest payments clients have a difficulty to pay because of the growing EURIBOR interest rates. As previously reported, the Ministry of Finance has developed and has commenced coordination of amendments to the Enterprise Income Tax Law that provide banks and consumer loan service providers the duty to provide enterprise income tax payments at 20% for profits gained in the pre-taxation year regardless if profits are distributed or not.
The Ministry of Finance notes that the institution will continue working together with the Bank of Latvia to develop the most appropriate solution focused on the most socially vulnerable households and does not pose a long-term threat to the investment environment and access to financial services.
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