Deductibility of professional liability insurance premiums after cessation of activity

The cessation of a professional activity does not necessarily imply the end of the financial obligations derived from it. A recurring question among professionals is whether professional liability insurance expenses, paid once the activity has ended, maintain their capacity to be deducted in the Personal Income Tax (IRPF) return.

What the DGT has ruled

The Dirección General de Tributos (DGT) has determined that professional liability insurance premiums paid after the cessation of activity maintain their nature as economic activity expenses. This criterion is based on the fact that the payment of said premiums is a direct consequence of the previous exercise of the professional activity.

For this deduction to be appropriate, the administration establishes two fundamental conditions:

• The principle of correlation between income and expenses must be met.
• These amounts must not have been previously deducted through provisions for risks in Corporate Tax.

Furthermore, the ruling clarifies that the fact that the professional no longer has formal business obligations, such as the obligation to keep registration books or make installment payments, does not prevent the application of this criterion.

What it means for you

If you are a professional who has stopped practicing but must keep your professional liability insurance in force to cover potential claims arising from your past practice, these expenses can be considered economic activity expenses. This allows for a reduction in the taxable base for IRPF, provided that current regulations are met and there is no duplication of deduction with Corporate Tax.

What you should do

It is necessary to verify that the insurance contracted is strictly linked to the ceased professional activity and that payments are made within the framework of the current regulations of Law 35/2006 on IRPF and Law 27/2017. It is recommended to analyze the particular situation of each case to ensure that the requirements of correlation between income and expenses are met before including these amounts in the tax return.