Bridging Finance - Guidelines

General

Section 245 TCA 1997, provides that where a person:

• Disposes of his/her main residence
• Acquires a new main residence
• Pays interest on a loan or loans obtained for the purpose of financing the cost of acquisition or disposal or both, or to repay in whole or in part a loan obtained for such a purpose,

special provisions apply to the relief under Section 244 TCA 1997, in respect of the first twelve months interest.

It should be noted that while Section 245 refers to “bridging loans”, it is not necessary that a loan be a bridging loan (as the term is understood by most people, i.e. temporary finance) to come within the terms of the section although there must be a disposal of one residence and the acquisition of another.

Where a person acquires a new sole or main residence and is making all reasonable efforts to dispose of the “old” one, the “old” residence will also be treated as a sole or main residence for a period of 12 months commencing with the date of the purchase of the new residence.

Whether or not a person is making reasonable efforts to dispose of his old residence is a question of fact. Generally, it would be expected that the house would be in the hands of an auctioneer or that it would be advertised for sale with reasonable frequency. If the house is being held deliberately with a view to appreciation in value, it would not be regarded as a sole or main residence.

Where the house is let, it would not be accepted that it is a sole or main residence of the lessor unless it is established that the letting is for weekly or shorter tenancies and the lessor is genuinely trying to dispose of it.

Guidelines

Additional relief is allowable under Section 244 TCA 1997, by virtue of Section 245 TCA 1997 and can amount to but may not exceed the appropriate ceiling on relief set out in Section 244 - the usual limits/restrictions and standard rating, as appropriate, apply.

Where the period of twelve months in respect of which the additional relief is due spans two income tax years, the ceiling is apportioned on a time-basis over the two years.

The excess of any interest paid during the period of twelve months on any loans to which Section 245 TCA 1997, applies over the relief allowable by virtue of the section is not available for any further relief under Section 244.

Procedures

The procedures to deal with claims for bridging finance under Section 245 TCA 1997 may be summarised as follows:

1. Ascertain the period of twelve months. This commences on the date the first loan on the new house was made and will not usually present any problems except in the case of a house under construction when the provisions set out on page 16 should be followed
2. Ascertain the interest paid (by apportionment, if necessary) in the period of twelve months on the loans in respect of which additional relief is due
3. If the period of twelve months falls into two income tax years, ascertain how much of the interest paid in the period was paid in each year (by apportionment, if necessary)
4. Apportion the appropriate limit under Section 244 TCA 1997 for each income tax year into which the period of twelve months falls by reference to the part of the period of twelve months falling into each year.
5. The amount of the additional relief allowable each year is the amount at (iii) restricted, where appropriate, to the amount at (iv).

(See examples below)

Example

A is a married man with the following circumstances:

Old house sold 31 December 1996

Interest on old mortgage 6 April 1996 - 31 December 1996 - ₤3,000

New house purchased 1 November 1996

Interest on bridging loan from 1 November 1996 - 31 January 1997 is ₤2,000

Interest on new mortgage 1 February 1997 - 5 April 1997 is ₤1,000

Interest on new mortgage year ended 5 April 1998 is ₤6,000

(i) The period of twelve months is 1 November 1996 to 31 October 1997.

(ii) The interest paid in the period of twelve months on the loan to which Section 245 applies is as follows:

1/11/1996 - 31/1/1997 (3 months)	₤2,000
1/2/1997 - 5/4/1997 (2 months)	₤1,000
6/4/1997 - 31/10/97 (6,000 × 7/12)	₤3,500
	₤6,500

(iii) The interest at (ii) falls into the following years of assessment:

1996/97	₤3,000
1997/98	₤3,500

(iv) The limits for each year of assessment under Section 244 TCA 1997 are as follows:

1996/97 ₤5,000 × 5/12	₤2,083
1997/98 ₤5,000 × 7/12	₤2,917

(v) The additional relief due under Section 244 TCA 1997 is:

1996/97	₤2,083
1997/98	₤2,917

The total interest allowable for each year is as follows:

1996/97

(a) Interest other than Section 245 interest
Old mortgage
(not in excess of limit)	₤3,000
(b) Additional relief for Section 244 interest	₤2,083
Total interest allowable	₤5,083
	x 80%
=	₤4,066
Less	₤200
Total interest relief -	₤3,866

1997/98

(a) Interest other than Section 245 interest
New mortgage
₤6,000 × 5/12 (not in excess of Section 244 limit)	₤2,500
(b) Additional relief for Section 245 interest	₤2,917
Total interest allowable	₤5,417
	x 80%
=	₤4,333
Less	₤200
Total interest relief	₤4,133

Note

The balance of interest not allowed 1996/97 and 1997/98 (₤917 and ₤583 respectively) is not available for any further relief. Likewise, if there were a balance of ordinary Section 244 TCA 1997 interest which could not be allowed because of the limit set out in those Sections, it cannot be allowed under Section 245 if the limit has not been exceeded there.

Mixed claims covering the twelve-month period

In practice, it may happen that a taxpayer may claim relief for the first year without reference to Section 245 TCA 1997, because his/her interest does not exceed the limit set out in Section 244 TCA 1997, but in the second year he/she must have recourse to Section 244. In these circumstances, the above procedures will be followed and any additional relief due for the second year will be allowed.