Interest deductions on owner occupied residential houses limited to first application only- LIRS

The Lagos State Internal Revenue Service (LIRS) issued a public notice (the Notice) on 20 September 2017 with respect to allowable interest deductions on owner-occupied residential houses.

The Notice aims to clarify the provision of Section 20(1)(b) of Personal Income Tax Act (PITA) which states that interest on loan obtained for developing an owner-occupied residential house is an allowable deduction.

Based on the Notice, a taxpayer would only benefit from the relief granted under Section 20(1)(b) of PITA on the first mortgage application provided the property is occupied by the taxpayer. Hence, where the first mortgage application is for multiple properties, the relief is restricted to the property occupied by the taxpayer.  However, where the first application is for one mortgage loan used to develop more than one apartment, the interest deduction is applied pro-rata based on proportion of the property occupied by the taxpayer.

Further, where the taxpayer lives in more than one property and submits multiple applications, tax relief will be available on the property with the lowest mortgage value at the beginning of the tax period.

Other highlights of the Notice include:

  • Taxpayers must provide evidence of occupation of property for at least a one-year period and this will be validated by LIRS at the end of the year.
  • Taxpayers are required to have declared the property as owner-occupied in the “Claims for Allowances and Relief (Form A).
  • While occupation is a prerequisite to be granted the relief, LIRS is flexible to consider interest incurred at development phase on a case by case basis.

We advise taxpayers and other stakeholders to take note of LIRS’ notice and ensure compliance.

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