Section 26E of Inland Revenue Ordinance states that the interest paid on loan for purchase of residence is tax deductible. In brief, the qualifying conditions are:-

• the person is the property owner; and
  
• the property is a rateable unit in Hong Kong; and
  
• the property is used as the person's residence; and
  
• the loan is subject to mortgage from a recognized lender such as bank.

The interest on loan for purchase of a car park space in the same development of the home is also deductible. It is added to the interest on the loan for the purchase of the home for the purpose of interest deduction.

There is a limit on the interest deduction. The current limit is $100,000. If the deduction is below the limit, the unused part cannot be carried forward.

A person can only get the deduction for a total of 10 years of assessments. It is up to him to apply for the deduction for any year of assessment throughout his working life.

Where the property is partly owned by the person, the interest deductible is restricted to his share of ownership.

Where the property is jointly owned by the person and his spouse, the deduction ratio of interest is 50%. But if the spouse has no income chargeable to tax, he can get the remaining 50% deduction by spouse¡¦s nomination. If the spouse has income chargeable to tax, no nomination is allowed but that spouse can get her share of the deduction in her own assessment. If the couple elects for joint assessment, then the total interest will be allowed in their joint assessment.

Where an additional loan is borrowed after the purchase of the property, the interest on the additional loan is not deductible.

A taxpayer may claim the deduction in his tax return. If he forgets to do so, he may claim it by an objection when he receives the assessment. Even if he misses the objection deadline, he can still claim it by a Section 70A claim (because it is an omission --- to claim the deduction).

A taxpayer may revoke his claim for home loan interest within 6 months of the assessment granting the deduction. The revocation is usually made by the taxpayer who has not fully utilized the maximum deduction and hopes that he can get greater tax reduction in future.

The granting of home loan interest is based on the registered legal interest of the property. That means it is granted to the owner as registered in the Land Registry. The IRD does not accept apportionment of the interest based on the contributions towards the purchase and installment repayment of the property. In other words, if the property is jointly owned by the taxpayer with his parent, only 50% of the interest payments will be allowed even though the taxpayer pays all the purchase price and monthly installments.

The IRD does not accept "trust" and "beneficial owner" claim either. If the taxpayer is not a registered owner with the Land Registry, he will not get the deduction even if he is a beneficial owner under the law of equity.