The draft amendments put forward a proposal to replace the income tax relief on interest paid on mortgage loans with an incentive on loans for the modernisation of multi-flat houses. Proposals have also been put forward to improve the procedure for taxation of income from sale of property.

The Ministry noted, however, that the proposals put forward would be applied only for the borrowers of newly issued loans.

It added that: "These amendments do not suspend validity of the current relief for the residents, who have already taken the mortgage loan and make use of the income tax relief."

And continued: "In the opinion of the Ministry of Finance, although the relief on interest paid on mortgage loans was incorporated as a social measure facilitating the acquisition of housing (in particular for young families), it contributed to a more rapid growth of real estate prices."

"Therefore, despite the changed situation in the real estate market, abolition of the relief remains relevant in order to prevent undesirable consequences in the future."

The Ministry of Finance has also discussed the draft amendments with representatives of the Association of Lithuanian Banks and commercial banks.

It revealed that: "During the meetings it was noted that the increase in the prices of energy resources stimulates strengthening of the measures by which the initiatives of residents to renovate their housings and at the same time to use energy resources in a more efficient way would be supported."

"It is beyond a doubt that a more efficient use of energy resources has a positive impact on the price paid by consumers."

"That is why modernisation of multi-flat houses is one of the key points in the Inflation Control Strategy, and thus, the proposal is after withdrawal of the relief on interest paid on mortgage loans, to apply the incentive on loans intended for modernisation of multi-flat houses."

It continued: "Taking into account the recommendations by the National Audit Office on the periodic relief impact assessment, it is proposed to set the relief on interest paid on credits taken for modernisation of multi-flat houses in the years 2009-2013."

"It is also proposed to simplify the terms and conditions for residents who change housing by applying the amendments to the procedure for taxation of the income from sale of real estate owned by an individual for non-commercial purposes."

"The proposal is to facilitate the terms and conditions for changing/transferring the place of residence, however, in cases of transfer of real estate other than housing, to extend the minimum period for maintaining the property under the right of ownership after which the income is not subject to taxation from 3 to 5 years."

"Currently valid taxation procedure (a 3-year term for maintaining the property the income from transfer of which is attributed to non-taxable income), limits the possibilities of residents to change housing without maintaining it for a 3-year period established by the law."

"The possibility for changing housing to a larger or smaller one in more frequent terms than every 3 years without fiscal consequences is of particular relevance during the period of the rapid increase in prices."

The Finance Ministry concluded: "Therefore, it is proposed to shorten the period of property maintenance up to 2 years, in case the property under sale was the place of residence declared by the resident."

"In case the place of residence was maintained even shorter, the income that during 1 year was used for the acquisition of another housing, where his residence were declared, would not be subject to taxation."

"These amendments have been prepared also taking into account international experience regarding the application of tax reliefs on income from transfer of non-commercial property."