Committee approves bill to terminate tax exemption for home loan interest

New apartment buildings.
New apartment buildings. Source: Siim Lõvi /ERR

The parliament's finance committee decided on Monday to pass on to the plenary a bill that would abolish the income tax exemption for home loan interests in Estonia from next year.

Chairman of the finance committee Erki Savisaar said that in accordance with the bill, it will no longer be possible to deduct the interests paid on home loans in the income tax returns to be filed for 2022. 

"The bill will not change the general cap on the deduction from taxable income, which remains at €1,200. The taxpayer will be able to deduct, for example, training expenses incurred and donations made, up to the amount of the previous deduction of the mortgage interest, if these deductions were previously unused because of the cap," Savisaar said.

The Center Party MP added that in order to facilitate the purchase of housing by young families, Kredex has drafted a measure whereby it is possible to direct support more efficiently and in a  more targeted manner specifically to those who need it. According to him, regional specificities are also taken into account.

Since the deduction of interest on a housing loan is limited to €300, the maximum impact of the change on the taxpayer is €60 per year.

The deputy chairman of the finance committee Aivar Kokk (Isamaa) said that the government is pursuing a tax policy hostile towards homeowners.

"The abolition of the mortgage interest exemption affects nearly 130,000 people," the opposition Isamaa MP said. 

The bill to amend the Income Tax Act, initiated by the government on May 31, seeks the abolition of the right to deduct interest on housing loans, as according to the finance committee it no longer fulfils its objective of reducing the impact of high loan interest rates to make home loans more accessible, and households with higher incomes in particular benefit from the exemption.

Lifting of the exemption has been recommended to Estonia by the Organization for Economic Cooperation and Development (OECD) on the grounds that it benefits first and foremost households with higher incomes and thereby increases inequality.

The plenary of the Riigikogu will hold the first reading of the bill on June 14. The finance committee proposed that the first reading be concluded.

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Editor: Helen Wright

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