Government supports abolition of home loan interest tax exemption

The government at its sitting on Thursday approved a bill of amendments to the Income Tax Act, which abolishes the income tax exemption on home loan interests.

Interest can no longer be deducted from taxable income in the declarations submitted from 2023 for 2022, government spokespeople said.

The right to deduct interest on a home loan will be abolished, as it no longer serves its purpose of reducing the impact of high interest rates on easier access to home loans and tax exemptions primarily benefit higher-income households. The amendment has also been recommended to Estonia by the Organization for Economic Cooperation and Development (OECD).

The draft does not change the general deduction limit from taxable income and it remains at €1,200. The taxpayer has the option to deduct, for example, training costs and donations made in the extent of the previous deduction of interest on a home loan, if these deductions have not been used until now due to the limit. As the interest deduction for a home loan is limited to €300, the maximum impact of the change on the taxpayer is €60 per year.

The impact of the amendment on the state budget is €6 million in 2023 and 2024 and €6.2 million in 2025.

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Editor: Helen Wright

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