From this article you will learn:

• When is a natural person obliged to pay tax after selling private real estate? 
• Is termination of a private annuity agreement treated as acquisition of real estate in light of the PIT Act? 

In what situation is it necessary to pay tax after selling private real estate? 

In Poland, natural persons who sell private real estate after the lapse of five years from its acquisition are not obliged to pay income tax on the sale. 

It is different if the transaction takes place before the five-year period has passed – in such a situation, the sale is taxable, and tax authorities require that the seller pay tax in the amount of 19%. The rules governing tax on the sale of real estate seem to be simple. However, it is not always the case, as it is problematic to define the moment of the sale. For example, In Polish law, under a private annuity agreement, a person transfers the ownership of real estate to the acquirer in exchange for the obligation of lifetime care.  One such case caused a dispute between tax authorities and a taxpayer. 

Terminated private annuity agreement and tax on the sale of real estate 

In the case in question, the dispute involved tax authorities and a man who acquired real property in 2009. Then, in 2015, he entered into a private annuity agreement with his relatives – the taxpayer's niece together with her family obliged to provide him with lifetime care in exchange for the title to the property. The purpose of the private annuity agreement was to provide the man with care – the elderly taxpayer was not able to perform activities of daily living without assistance. However, three years later, the man's relatives withdrew from the private annuity agreement, and he was forced to sell his real estate and move to a care home. 

The tax authorities decided that following the termination of the private annuity agreement, the man re-acquired the title to the property. And this meant that the period of five years had not passed, so the taxpayer had to pay tax on the sale of real estate. According to the Director of the National Tax Information, termination of a private annuity agreement means transfer of ownership, which is equivalent to acquisition.

The court was of a different opinion. In its judgment of 7 February 2024 (file ref. no. II FPS 4/14), the Supreme Administrative Court ruled that in calculating the five-year period, one must take into account the time during which the taxpayer owned the real estate, both before entering into a private annuity agreement and after its termination. Importantly, this approach refers specifically to termination of a private annuity agreement (as an agreement with support purposes), and it is not applicable to a sale agreement. 

The court declared that in analysing the matter, one should have taken into account the fact that the private annuity agreement had not been terminated at the taxpayer's initiative, and the sale of the property had been his only way to satisfy his basic needs. 

Consequences for taxpayers 

There are more cases of termination of private annuity agreements than it may seem. Therefore, the judgment is very important to those taxpayers who – so as not to pay tax – have refrained from selling the property in such a situation, and have not been able to function properly. Furthermore, it is a crucial judgment illustrating the fact that courts interpreting the law take much more rational (and taxpayer-friendly) approach than the taxman. That is why it is always a good idea to assert your rights.