TEAC allows life insurance premiums as a deductible financing cost for rented property

A TEAC ruling under its procedure for unifying criteria allows certain life insurance premiums linked to a mortgage on a rented property to be deducted, expressly departing from the Directorate General for Taxes’ previous approach

Landlords may have a newly deductible expense to consider in their personal income tax return.

The Central Economic-Administrative Tribunal (TEAC) has held that premiums for life insurance linked to a mortgage over a rented property may be deducted when calculating net property income where taking out the policy forms part of the financing arrangements and earns a reduction in the mortgage interest rate.

The ruling is particularly significant because the TEAC expressly states that its criterion is contrary to the position previously taken by the Directorate General for Taxes (DGT).

This is TEAC Resolution of 24 June 2026, case reference 00/07082/2025, issued in an extraordinary appeal for the unification of criteria. Read the official TEAC criterion and ruling.

This is not an isolated decision affecting only one taxpayer. Article 242(4) of the General Tax Act provides that criteria established in this type of ruling bind the economic-administrative tribunals and the rest of the tax administration.

The case: two rented properties and life insurance linked to the financing

The case arose from a taxpayer’s 2022 personal income tax (IRPF) return. The taxpayer earned property income from renting out two flats.

The Tax Agency began a limited verification on 28 February 2024.

The procedure ended on 24 May 2024 with a provisional assessment. The Tax Agency initially rejected several expenses claimed by the landlord, including:

• Interest on the mortgage financing.
• Life insurance premiums related to that financing.

The taxpayer appealed.

On reconsideration, the Tax Agency eventually accepted that the financing interest was deductible after it was shown that the loan had funded construction of the property later let.

It nevertheless continued to reject the life insurance premiums.

The Tax Agency relied on binding DGT ruling V2303-18 of 7 August 2018. The DGT’s official ruling search portal provides access to that consultation.

The DGT’s previous position

Ruling V2303-18 considered a very similar situation.

A person had bought a home with a mortgage. Under the contract, the bank could increase the interest rate if the borrower did not take out certain products offered by the bank, including life insurance.

The home was later rented out.

The question was straightforward: could the life insurance premium be deducted when calculating net rental income?

The DGT’s answer was no. Its reasoning distinguished between two situations:

• The insurance is essential to obtaining the loan.
• The insurance is not essential, but it qualifies the borrower for a lower interest rate.

In the case before it, not taking out the policy would not have prevented the borrower from obtaining the loan; it would only have meant paying a higher interest rate. The DGT therefore considered that the premium was not an expense necessary to earn property income and denied the deduction.

The Tax Agency applied that same position to the taxpayer in the case now decided by the TEAC.

The Regional Tribunal of Aragón ruled in favour of the landlord

The taxpayer appealed to the Regional Economic-Administrative Tribunal of Aragón (TEAR).

In its decision of 30 June 2025, claim 22/504/2024, the TEAR upheld the taxpayer’s claim.

The contractual details were also relevant. The life insurance policy was expressly linked to the loan. The decision records that:

• The policy began on 7 December 2016.
• It would not take effect unless the linked loan took effect.
• If the loan was repaid early, the policy also ended and the unused part of the premium was refunded.

The TEAR found a sufficient connection between the two arrangements.

The insurance expense arose from the mortgage financing and directly affected its financial cost because taking out the policy reduced the interest rate.

The Director of the Tax Agency’s Tax Management Department appealed to the TEAC so that a uniform criterion could be established.

The TEAC also ruled in favour of the taxpayer.

Article 23 of the Personal Income Tax Act

Article 23(1)(a)(1) of the Personal Income Tax Act allows the following expenses to be deducted when calculating net property income:

• Interest on borrowed capital invested in acquiring or improving the property.
• Other financing expenses.
• Repair and maintenance expenses.

The Act does not provide a closed list of what counts as “other financing expenses”. Article 13 of the Personal Income Tax Regulations develops this rule and also recognises interest and other financing expenses connected with the property that generates the income. Official consolidated text of the Personal Income Tax Act; Official consolidated text of the Personal Income Tax Regulations.

That is where the TEAC focused its analysis: can this life insurance premium be treated as a financing expense?

It answered yes.

The life insurance is not deductible as insurance on the property

This distinction matters.

The Personal Income Tax Regulations expressly allow certain insurance premiums on the rented property to be deducted, for example:

• Public liability insurance.
• Fire insurance.
• Theft insurance.
• Glass-breakage insurance.
• Other insurance of a similar nature.

Life insurance does not fall into this category. Under fire insurance, the insured risk concerns the property. Under life insurance, the insured risk concerns the landlord’s life or incapacity.

The TEAC therefore expressly recognises that life insurance cannot be deducted by applying the rule for insurance on the property directly.

The deduction is available on a different basis: the premium is treated as a financing expense.

The key point: taking out the policy means paying less interest

The TEAC’s economic and tax reasoning is particularly relevant.

Suppose a bank offers two options:

Option A
A mortgage at 3.5% without life insurance.

Option B
A mortgage at 3% with life insurance costing €500 a year.

Mortgage interest is deductible when the loan was used to acquire or improve the rented property.

In substance, the TEAC says it would be inconsistent to let the landlord deduct more interest when they refuse the insurance but prevent them from deducting the insurance cost when they take it out precisely to reduce that interest.

The policy and the financing cost are economically connected.

The TEAC therefore concludes that where taking out the policy earns an interest-rate discount, there is a direct link between the premium paid and financing the property that generates the income.

The Tribunal also observes that denying the deduction would be inconsistent: if the taxpayer did not take out the policy, they would simply pay more interest, and that interest would be deductible.

A policy can be voluntary and still be deductible

This is another important point.

The DGT’s previous reasoning was based on the fact that the taxpayer could still obtain the loan without taking out the policy.

The TEAC rejects the idea that being legally compulsory is decisive. An expense does not have to be legally mandatory to qualify for tax relief. What matters is whether it is directly connected with earning the income.

In addition, following Law 5/2019 on real estate credit agreements, many insurance products are offered together with mortgages. A borrower may choose whether to take the additional product, but doing so can improve the financial terms.

In short: voluntary does not mean unnecessary for tax purposes.

If taking out the policy reduces the cost of the loan, it may have a sufficiently direct link to financing the rented property.

The TEAC expressly identifies its disagreement with the DGT

The ruling makes the difference in doctrine clear.

The TEAC’s official record states: “This ruling establishes a criterion contrary to that of the Directorate General for Taxes, binding ruling V2303-18 of 7 August 2018.”

This has practical importance because the decision was issued in an extraordinary appeal for the unification of criteria.

Article 242(4) of the General Tax Act provides that the criterion is binding on:

• Regional and local economic-administrative tribunals.
• Regional economic-administrative bodies.
• The State tax administration.
• The tax administrations of the autonomous communities and the autonomous cities.

Accordingly, where the TEAC’s conditions are met, the Tax Agency should not continue to reject these premiums solely by relying on the former position in DGT ruling V2303-18. Official consolidated text of the General Tax Act, including Article 242(4).

Not every life insurance policy qualifies

This is the main limitation for landlords.

The ruling does not allow every life insurance policy held by someone who rents out a home to be deducted. The TEAC itself makes this clear.

For example, it would not be enough for the landlord to have held a general life insurance policy for years to protect their family. Nor would a policy entirely independent of the mortgage financing be sufficient.

The taxpayer must be able to demonstrate a specific connection between the policy, the loan and the rented property. In particular, the relevant facts include:

1. A mortgage loan related to acquiring, constructing or improving the property that generates the income.
2. The life insurance is included among the loan conditions.
3. Taking out the policy allows the borrower to obtain better financial terms, particularly a lower interest rate.
4. There is sufficient documentation to prove that connection.

The TEAC expressly excludes life insurance taken out solely for personal reasons and without a link to the financial terms of the loan.

What records should be kept?

Evidence will be essential. The taxpayer should keep:

• The mortgage deed or loan agreement.
• The specific loan terms and conditions.
• Documents showing any applicable interest-rate discounts.
• The life insurance policy.
• Premium receipts.
• Bank statements proving payment.
• Contractual information comparing the interest rate with and without the policy.
• Certificates from the lender, if needed.
• Documents showing that the loan financed the rented property.

The more clearly the taxpayer can show that taking out the policy reduces the mortgage cost, the stronger the deduction claim.

How much can be deducted?

The TEAC also records that premiums are deductible in proportion to the number of days the property was actually rented.

For example, a landlord pays an annual life insurance premium of €600 in 2026 and rents out the home for the full year. If all the other requirements are met, the €600 may be treated as a financing expense.

If the home was rented for only 183 days, the deductible amount must be adjusted to reflect the actual rental period.

This is not a personal deduction for having a mortgage. It is an expense connected with earning property income.

A combined limit applies to interest, financing and repairs

Because the premium is treated as a financing expense under Article 23(1)(a)(1) of the Personal Income Tax Act, the limit in that provision also applies.

The total of interest, other financing expenses, and repair and maintenance expenses cannot exceed the gross rental income from each property.

Any amount that cannot be deducted because of this limit may be carried forward to the following four tax years, subject to the same statutory limit.

For example, if a property generates €8,000 in rent and the landlord has €5,000 of interest, €1,000 of deductible insurance premiums and €4,000 of repairs and maintenance, those expenses total €10,000.

The maximum deductible in that year for these items is €8,000. The excess may be carried forward under Article 23 of the Personal Income Tax Act.

Could this affect earlier tax returns?

Potentially, yes.

Landlords who did not deduct life insurance premiums in earlier years because they followed the DGT’s position should review their circumstances. They may consider a correction for tax years that are still within the applicable limitation period if:

• The property was rented out.
• The loan financed its acquisition or improvement.
• The policy formed part of the financing conditions.
• Taking out the policy reduced the interest rate.
• The premiums were paid and can be evidenced.

The appropriate procedure under the legislation in force must be used. Each case needs to be assessed individually, including the limits in Article 23(1) of the Personal Income Tax Act.

This does not mean that every mortgaged landlord is automatically entitled to a refund. The ruling may, however, allow some taxpayers to recover tax overpaid in particular years.

A criterion with a clear economic rationale

The TEAC ruling is also persuasive from the perspective of economic capacity.

The landlord earns rental income and incurs a financing cost connected with the property. If the choice is between paying more interest or paying less interest by taking out insurance, it is difficult to justify deducting all the financing cost in the first case while denying part of it in the second.

The TEAC rejects that asymmetry.

The premium is not deductible because the taxpayer has life insurance. It is deductible because, under the particular loan terms, it forms part economically of the cost of financing the property.

That distinction is fundamental.

Practical consequences

Following this ruling, landlords with mortgaged properties should review their loan agreements, especially where they have:

• Life insurance.
• Loan repayment insurance.
• Products linked to a mortgage rate discount.

They should then ask: How much would the interest rate increase if the policy were cancelled?

If cancelling it would remove a discount provided for in the contract, there is a particularly strong argument for treating the premium as a deductible financing expense under the TEAC’s new criterion.

Conclusion

TEAC Resolution of 24 June 2026, case reference 00/07082/2025, is a significant development for landlords whose rented properties are financed by mortgages.

The DGT had previously taken the view that life insurance which merely reduced the mortgage interest rate was not a necessary expense and could not therefore be deducted from rental income.

The TEAC expressly rejects that position.

Where taking out the policy forms part of the financing terms and earns an interest-rate discount, the premium is a deductible financing expense under Article 23(1)(a)(1) of the Personal Income Tax Act. Because the TEAC established the criterion through its procedure for unifying criteria, it binds the tax administration.

That does not mean that every landlord with a mortgage may deduct any life insurance policy. The taxpayer must document the connection between the premium, the loan terms, the interest-rate reduction and the property generating the rental income.

The practical conclusion is simple: if a landlord pays for insurance to reduce the financing cost of a rented property, the premium may form part of the tax-deductible cost of earning the rental income.