Rental Income Mortgage Protection Policy Premiums

Allowable deductions under the tax law relating to rental income are provided for in Section 97(2) TCA 1997. Section 97(2)(d) authorises a deduction in respect of “the cost of ...management of the premises borne by the person chargeable and relating to and constituting an expense of the transaction or transactions under which the rents or receipts were received, not being an expense of a capital nature”.

In strictness mortgage protection policy premiums are arguably not part of the cost of management of the premises but relate more to the management of the landlord’s financial affairs than to the management of the premises. Such expenditure could also be argued to be capital in nature. However, Revenue recognise that financial institutions insist that such policies are put in place when sanctioning borrowings. Accordingly, Revenue, having reviewed the position, is prepared to treat mortgage protection policy premiums paid as an allowable deduction in computing rental income for income and corporation tax purposes.

The new treatment applies to returns submitted after 1 January 2002. Returns already submitted will not be reopened.

Practitioners should note that this treatment only applies to mortgage protection policy premiums. Such a policy is aimed at covering the full amount left outstanding on a person’s mortgage should they die. It is often called decreasing term insurance, as the amount that needs to be covered reduces every time a payment is made, with the result that premiums are lower than those for straight insurance. This type of policy should not be confused with other products often offered by life assurance companies such as mortgage payment protection policies, keyman insurance or endowment policies. These are a form of short/straight term insurance which pay out if an individual becomes unemployed or ill and are not normally linked to a person’s life. Revenue does not allow this latter type of policy premium as a rental income deduction.

Practitioners should also note that mortgage protection plan policies linked to a person’s life are life assurance policies, the proceeds of which are taxed in accordance with Section 593 TCA, 1997.