Loans used to buy lifetime annuities, known as home income plans, will no longer receive tax relief under plans put forward by HM Revenue & Customs.
The government plans to axe mortgage interest relief on loans to purchase life annuities taken out by people aged 65 or more before 1999 from April 2019.
Mortgage interest relief was introduced in 1969 to give relief for the interest paid on loans for the purchase or improvement of land.
These categories of interest relief were subsequently expanded to include the relief for interest on loans to purchase life annuities where the annuitants were aged 65 plus.
Initially relief was given for interest on the full amount of a loan of any size.
The relief was subsequently restricted and is now limited to interest on £30,000 of a loan.
Before April 1983, the allowable interest was deducted from taxable income, either in an assessment or by increasing the PAYE (pay as you earn) code number.
In April 1983 the mortgage interest relief at source scheme (Miras) was introduced under which the borrower pays the lender the interest less the tax relief.
The rate of relief given has varied since its introduction.
Currently the payer is entitled to deduct 23 per cent from payments of interest qualifying for relief.
HMRC subsequently reimburses the lender for the amount deducted.
Relief for interest paid on loans other than those to purchase an annuity was withdrawn by April 2000.
Interest relief for those aged 65 and over taking out new loans to buy a life annuity was withdrawn from 9 March 1999.
However, existing loans had continued to qualify for the remainder of the loan period.