Does a delay in picking up the apartment invalidate the right to housing relief?

Many people struggle with the problem of delays in the acceptance of an apartment purchased from a developer. This circumstance affects the right to a housing allowance specified in the PIT Act, as it determines the specific time limit for obtaining the ownership title to the premises. Due to a recurring problem, it is worth analyzing how it is approached by the tax authorities and administrative courts.

Right to housing relief

As a rule, in the case of the sale of real estate for consideration, carried out within 5 years from the end of the calendar year in which the acquisition took place, there is a need to pay 19% personal income tax on the income from the sale.

The taxpayer may protect himself against the above burden by taking advantage of the housing relief specified in art. 21 sec. 1 point 138 of the PIT Act. Pursuant to this provision, income from the sale of real estate and property rights for remuneration is free from income tax, in the amount corresponding to the product of this income and the share of expenses incurred for own housing purposes in the income from the sale of real estate and property rights for consideration, if not later than within three years from the end of the tax year in which it occurred, the income obtained from the sale of this property or this property right was spent for own housing purposes; documented expenses incurred for these purposes are taken into account up to the amount of income from the sale of real estate and property rights against payment.

The presented exemption will cover such part of the income obtained from the sale of real estate against payment, which proportionally corresponds to the share of expenses incurred for own housing purposes in the income obtained from the disposal against payment.

In a situation where the income from disposal for consideration would be entirely allocated to housing purposes, then the income obtained on this account would fully benefit from the tax exemption.

Importantly, however, the exemption is not used by any expenditure, but only for those related to your own housing purposes. In the closed catalog specified in Art. 21 sec. 25 of the PIT Act, the expenditure for own housing purpose was considered, inter alia, purchase of a dwelling. It is worth emphasizing that the taxpayer must actually live in such a place and it must be the center of life interests for him - the expenditure may not apply to investment premises or to meet the housing needs of other people.

However, in the context of the problem we are examining, the content of Art. 21 sec. 25a of the PIT Act. This regulation states that expenses are considered to be incurred for housing purposes if, before the end of the three-year period, counting from the end of the calendar year in which the previous real estate was sold, ownership of the property or rights to new real estate was acquired, for which the taxpayer incurred acquisition expenses.

The housing relief gives the right to the exemption if, within the statutory period, the taxpayer acquires legal title (ownership) to the property, which is related to the disbursement of funds from the sale.

Delay in picking up a new apartment and the impact on the right to housing relief

In the context of the above-mentioned of regulations, let's analyze the following example.

Example 1.

In 2017, an individual received a real estate as a donation. In 2019, she sold it. Due to the fact that the 5-year period has not expired, this type of sale is generally subject to PIT taxation. However, the taxpayer decided that the entire sales revenue would be allocated to the purchase of a new premises from the developer. The development contract was concluded at the beginning of 2020. Due to delays in construction, the right to the premises was transferred in January 2023. This means that the period longer than 3 years specified in the act has elapsed, and the taxpayer has spent the entire amount obtained from the sale.

In the context of the presented facts, one should consider whether the taxpayer retains or loses the right to tax exemption?

When analyzing the position of the tax office expressed in numerous tax interpretations, it can be concluded that the tax authorities closely examine the date of acquiring property and follow Art. 155 of the Civil Code, which states that the contract of sale, exchange, donation or other agreement obliging to transfer the ownership of the thing as to the marked identity transfers the ownership to the buyer, unless a specific provision provides otherwise or the parties have agreed otherwise.

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It follows from the content of this provision that the ownership of real estate is transferred upon the conclusion of the final contract of sale in the form of a notarial deed. Both the conclusion of the development agreement and the payment of the price, pursuant to this agreement, may lead to the acquisition of property or rights, but are not equivalent to it.

The moment of transfer of ownership of the real estate is specified in Art. 155 § 1 of the Civil Code. On the other hand, the developer agreement is not an agreement that transfers the ownership of the real estate. The content of the development contract is therefore only the obligation of the parties to establish for the buyer, after the completion of the development project, separate ownership of the apartment and transfer the ownership of this apartment to the buyer, but this ownership is not transferred by the development contract itself.

The regulations in force in the PIT Act mean that income in connection with the expenditure of income on the final and final acquisition of real estate, i.e. resulting in the transfer of ownership, is tax-free within three years counted from the end of the calendar year in which the sale for consideration took place.

This, in turn, means that if the transfer of ownership in the form of a notarial deed does not take place within this period, the condition specified in the act will not be met.

Such a position was presented, for example, by the Director of KIS in the interpretation of January 13, 2021 (No. 0113-KDIPT2-2.4011.838.2020.2.DA).

In the opinion of the tax office, disbursement of cash towards the purchase price of a flat may be considered an expense for own housing purpose only if, within three years from the end of the calendar year in which the sale took place, the taxpayer also acquires ownership of the property. The development contract itself does not meet this condition. As a result, the delay in collecting the apartment cancels the taxpayer's right to take advantage of the exemption.

The inconsistent position of administrative courts and the right to a housing allowance

However, if we want to refer to court judgments issued in similar cases, it must be pointed out that the position is inconsistent.

On the one hand, we can observe judgments confirming the opinion of the tax office. For example, the judgment of the Provincial Administrative Court in Gdańsk of March 7, 2017 (file reference number I SA / Gd 1549/16), in which it was indicated that in order to benefit from the exemption, it is necessary to spend both the revenues from the sale of the previously owned apartment within the statutory deadline. , as well as performing activities related to the acquisition of another premises or real estate, i.e. concluding a final sales contract. To exercise the right to the described exemption, it is not enough only to spend cash, but to actually and finally acquire the real estate.

On the other hand, one can also find favorable judgments for taxpayers. For example, in the judgment of the Supreme Administrative Court of February 7, 2018 (reference number II FSK 3510/17), where the court stated that the amounts paid to the developer under the development contract constitute expenses for the construction of their own apartment. A similarly favorable position was presented by the Supreme Administrative Court in its judgment of July 31, 2018 (file reference number II FSK 44/18).

Some court judgments give taxpayers grounds to defend their position and recognize that the mere conclusion of a developer contract and spending funds for own housing purposes entitles them to take advantage of the exemption, even if the transfer of ownership takes place after the statutory three-year period.

Bearing in mind the information presented, it should be noted that the issue of delay in taking the apartment and its impact on the right to housing relief is a highly debatable issue. Currently, it is difficult to count on a change in the position of the tax office, but more and more often we can observe favorable judgments issued by the Supreme Administrative Court in such cases.