Unlocking Tax Savings: Save Tax On Your Home Loan

Buying a home is a significant milestone in life, but it also comes with increased financial responsibilities. As the tax season approaches, many are exploring ways to leverage various deduction opportunities to alleviate their tax burden. This article will provide you with a comprehensive overview of the "Deduction for Home Loan Interest" scheme in Hong Kong, covering the eligibility criteria, calculation methods, and the application process, to help you navigate the tax filing season with ease.

Buying house with mortgage, realtor gives key to new homeowners.

Can I Deduct My Mortgage Interest?

The deduction for home loan interest is a tax incentive introduced by the Hong Kong government. Homeowners can deduct the interest paid on their residential property, with an annual cap of HK$100,000. The deduction period extends up to 20 tax years, and you can flexibly arrange the years in which you apply for the deduction.

Eligibility Criteria

You are the registered owner of the property (sole owner, joint tenant, or tenant-in-common).
The property is in Hong Kong and assessed under the Government Rent (Assessment and Collection) Ordinance.
The property is used as your primary residence, either fully or partially. If only partially, the deduction amount will be prorated.
The interest you paid during the relevant tax year is for the purpose of acquiring the property.
The loan is secured by the property or another Hong Kong property.
The lender is an institution recognized under the Inland Revenue Ordinance, such as: (a) The Government, (b)A Financial Institution, (c) A Registered Cooperative Society, (d) A Licensed Money Lender, (e)The Hong Kong Housing Society, (f) Your Employer, (g) An Organization Approved By The Commissioner Of Inland Revenue.

Increased Deduction for Families with Newborns

If you live with your child born on or after October 25, 2023, during the tax year, the home loan interest deduction limit can be increased from HK$100,000 to HK$120,000, until the child reaches the age of 18. This favorable policy also applies to the residential rental deduction.

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Calculating the Deduction Amount

The deduction amount varies depending on your ownership situation. If the property is not solely used as your primary residence, the interest paid must be prorated accordingly when calculating the deductible amount.

1. Ownership Proportion

Sole Owner

If you own the property in full and use it as your primary residence, you can claim the maximum deduction limit of HK$100,000.

Joint Tenants or Tenants-in-Common

If you co-own the property, the deduction must be allocated based on the number of co-owners or the ownership proportion.

2. Marital Status

Separate Salaries Tax Computation

If you and your spouse co-own the property, you can each claim the deduction based on your respective ownership proportions.

Combined Salaries Tax Computation

If both have taxable income, and one spouse's income is lower than the total deductible interest and personal allowance, you can apply for a combined assessment.

Nominating Spouse for Deduction

If one spouse has no taxable income, the property-owning spouse can nominate the other spouse to claim the deduction.

Personal Assessment

Under personal assessment, the deductible mortgage interest paid by either spouse will be first deducted from their respective incomes. Any remaining amount can then be used to offset the other spouse's income, but the balance cannot be carried forward to future tax years.

Application Process and Required Documentation

Complete sections 8.1, 8.2, and 8.4 of the Individual Tax Return (BIR60). If you have a refinanced or second mortgage, you'll also need to fill out section 10 of the appendix.
If you wish to withdraw a previously claimed deduction, you must do so in writing within 6 months of the notice issued by the Inland Revenue Department.
Retain relevant receipts and records for 6 years from the end of the tax year, in case the Inland Revenue Department needs to verify the documents, such as: Proof of property ownership, Evidence of the property being your primary residence, Loan agreement or mortgage contract, and Loan repayment statements.

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Conclusion

In addition to the home loan interest deduction, owning property under a company name is another common tax-saving strategy. You can refer to our previous blog post "How to Calculate Property Tax? Tips to Save on Property Tax" for more details. Consulting a professional accounting team can help alleviate many of the related hassles. The experienced and trusted accounting team at OneStart Business Centre is available to assist you. Feel free to call 3575 6888 or WhatsApp OneStart business consultants to learn more.

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