Appendix 1
The text of the Article in Tax Briefing, Issue 53 on Mortgage
Protection Policy Premiums is as follows:
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.