Deductibility of Mortgage-Linked Life Insurance Premiums for Rental Properties in Spain

Financial institutions frequently offer a lower interest rate on a mortgage loan if the borrower takes out certain linked products, including life insurance. When the property acquired is intended to be rented out, the question is whether the premiums paid can be deducted when calculating net rental income.

The Spanish Personal Income Tax Law allows taxpayers to deduct interest on borrowed funds invested in the acquisition or improvement of the property, as well as other financing costs. However, it does not expressly say whether mortgage-linked life insurance premiums count as such costs.

The Resolution of the Central Economic-Administrative Tribunal (TEAC) of 24 June 2026 (Case No. 7082/2025), issued to unify the applicable interpretation, answers yes. In doing so, it expressly departs from the position previously taken by the Directorate-General for Taxation (DGT).

WHAT EXPENSES MAY BE DEDUCTED FROM RENTAL INCOME?

Article 23.1(a)(1) of the Spanish Personal Income Tax Law allows the following expenses to be deducted when calculating net income from immovable property:

• Interest on borrowed funds invested in the acquisition or improvement of the property.
• Other financing costs.
• Repair and maintenance expenses.

These provisions are further developed in Article 13(a) of the Spanish Personal Income Tax Regulations, which repeats these categories and sets the applicable limit.

Although a life insurance premium does not constitute interest as such, it may be regarded as a financing cost where there is a direct connection between taking out the policy and the financial terms of the mortgage loan. This is the case where the lender charges a higher interest rate if the borrower does not take out the insurance, and a discounted rate if the policy is taken out and kept in force.

THE DGT’S PREVIOUS POSITION

The DGT had accepted that life insurance premiums could be treated as financing costs where taking out the policy was one of the conditions required by the lender.

For rented properties, however, it denied the deduction where the insurance was not essential to obtain the loan and merely gave the borrower a lower interest rate.

This position was set out in Binding Tax Ruling V2303-18 of 7 August 2018. In the case examined, a borrower who did not take out the insurance would still have obtained the financing, but at a higher interest rate. For this reason, the DGT concluded that the premium was not a necessary expense for generating rental income.

THE TEAC’S NEW POSITION

The TEAC expressly departs from this interpretation and clarifies that the concept of a “necessary expense” does not require the expenditure to be compulsory or unavoidable.

What matters is whether there is a direct connection between the expense and the income it generates. If the life insurance policy reduces the mortgage interest rate, the premium paid directly affects the financing cost of the rented property and may therefore be included under the “other financing costs” referred to in Article 23.1(a)(1) of the Spanish Personal Income Tax Law.

The Tribunal also relies on a particularly clear argument: if the owner chose not to take out the insurance, they would pay higher interest, and that higher interest would be deductible. It would therefore be inconsistent to allow the deduction of this higher financing cost while rejecting the premium paid to reduce it.

WHAT REQUIREMENTS MUST BE MET?

The TEAC’s position does not mean that any life insurance policy taken out by the owner of a rented property is deductible. The following requirements must be met:

• The loan must finance the acquisition or improvement of the rented property.
• Taking out the insurance must form part of the terms and conditions of the mortgage loan.
• The policy must produce a discount or reduction in the interest rate.
• The premium must have actually been paid.
• The property must generate rental income classified as income from immovable property.

Where the property has only been rented out for part of the year, the premium paid will be deductible in proportion to the number of days during which the property was actually rented.

WHICH LIFE INSURANCE POLICIES ARE EXCLUDED?

Under this rule, landlords cannot deduct policies taken out separately to cover death or incapacity if the policy is not part of the lender’s terms and does not reduce the interest rate.

Nor may such premiums be deducted as property insurance under Article 13(f) of the Spanish Personal Income Tax Regulations. In the case of civil liability, fire, theft or glass-breakage insurance, the insured risk relates to the asset generating the income. In the case of life insurance, the insured risk relates to the policyholder’s life or incapacity. Where the premium is deductible, it is because it qualifies as a financing cost.

WHAT LIMIT APPLIES?

As the premium is treated as a financing cost, it is subject to the limit established in Article 23.1(a)(1) of the Spanish Personal Income Tax Law and Article 13(a) of its Regulations.

For each property, the combined amount of the following expenses may not exceed the gross income obtained:

• Interest on the loan.
• Other financing costs, including the life insurance premium.
• Repair and maintenance expenses.

Any excess that cannot be deducted may be carried forward and deducted during the following four years, subject to the same limit in each tax year.

PRACTICAL EXAMPLE

A property owner receives €8,000 in rental income from a residential property and incurs the following expenses:

The owner may deduct a maximum of €8,000 in that tax year. The remaining €300 may be deducted during the following four years, subject to the same annual limit.