Irish Revenue treats interest cap fees as part of the loan’s interest expense, allowing them as a deduction when the underlying loan interest is deductible for trade or professional profits.
Irish Revenue has issued eBrief No. 217/25 on 25 November 2025, updating the Tax and Duty Manual (TDM) Part 04-06-21 on the tax treatment of debt issuance costs, including interest cap fees. The update incorporates guidance on interest cap fees, which was previously provided in TDM Part 08-03-02 into Part 04-06-21.
The revised guidance now consolidates the rules on how interest cap fees are treated for tax purposes.
The tax treatment of interest cap fees
Interest caps set an upper limit to the interest payable on variable rate loans. Caps may be included in a loan agreement or may be subject to a separate agreement with either the lending bank or another bank. In return for the interest cap fee or payment, which may be paid up front, the bank agrees to compensate the borrower if interest rates rise above a certain level.
Revenue treats a payment for an interest cap as part of the interest expense relating to a loan. Where the interest on the loan to which the cap applies is allowable in computing the profits of a trade or profession, the payment for the interest cap will also be allowed.
