Tax benefits

Tax breaks, from 2025 tightening also on new mortgages and education

From next year, for incomes over 75,000 euro, the deduction cut-off will also be triggered for these household expenses

by Cristiano Caltabiano and Ilaria Ioannone

24 November 2024

3' min read

The cut to the deductions for incomes above 75,000 euro also affects mortgages for the purchase of a first home and education and university expenses. The restricted deductions will force taxpayers with higher incomes to choose the expenditure subject to the tax benefit. Indirectly, with the manoeuvre on deductions, welfare is being redesigned, with only the guaranteed tax rebate on healthcare expenses.

In a complex economic scenario, the finding of resources by the executive also passes through cuts and the revision of tax benefits. Measures, over time, have stratified, supporting the generality of (or various categories of) citizens for different kinds of expenses. In some cases, these are measures that provide a reduced benefit, at an administrative cost.

In any case, tax deductions count more than 500 items, with a total cost of more than 70 billion per year.

Limits to deductions

With the draft budget bill, from next year, comes the cut in deductions with the provision of a maximum level within which they can be used.

The squeeze will affect taxpayers with incomes over EUR 75,000 and EUR 100,000. For the former, a mechanism will be triggered that will allow households with more than two children to go up to a maximum annual deduction of EUR 14,000. For singles, the maximum will be EUR 7,000.

For taxpayers over EUR 100,000 in income, the ceiling with more than two dependent children will be EUR 8,000, which drops to EUR 4,000 without dependent children.

That is, the maximum amount of the deduction will be modulated according to coefficients: 0.50 if there are no dependent children in the household; 0.70 if there is one child; 0.85 with two children; 1 with more than two children or at least one with a disability.

The painting

The data confirm that health expenditure is the number one item of tax expenditure, with just over 21.5 million taxpayers making use of it in 2022, amounting to EUR 23.7 billion (an average of EUR 1,099 per capita). It should be noted that in the post-pandemic period, this component of tax expenditure has increased significantly (18.4 % between 2019 and 2022).

Another item is disbursements for children's primary, secondary and tertiary education, including the cost of a bed for students away from home. This is made up of just under 6 million taxpayers who deduct 4.1 billion from their income for their children's education (an average of 3,781 euro, an increase of 3.8% over the last four years). This rate of change is an average between deeply divergent trends between expenditure on university education, which increased between 2019 and 2022 by 12.9 per cent, and expenditure on children's sports activities, which decreased by 14.7 per cent.

The third item concerns mortgage disbursements from the purchase of the main home, which affects about 4.3 million taxpayers, generating a volume of tax expenditures of about EUR 4.7 billion in 2022, an average of EUR 1,112 (+6% compared to 2019).

What will happen from 2025

As mentioned, health expenses are excluded, for everyone, from the cut in deductions. For the other categories of expenditure, on the other hand, above 75,000 euro the cut will be triggered, which will also affect education expenses (university and otherwise), those in favour of children with learning disorders, first home loans, and building maintenance expenses.

It must be said that the manoeuvre will not affect past expenses linked to deductions: therefore, those who have taken out a first home loan contract by 31 December 2024 can continue to deduct the interest without having to take into account the ceiling. The same applies to expenses for the energy requalification of buildings and ordinary maintenance incurred up to and including 2024, which can continue to be deducted according to the old limits. Instead, disbursements to the third sector will also end up in the squeeze.