Abolition of joint ownership of real estate - effects in PIT

Natural persons who are co-owners of real estate often abolish co-ownership. This activity can be performed both against payment and free of charge. Due to the existence of such two possibilities, it is worth considering the tax consequences that the abolition of joint ownership of real estate causes on the basis of personal income tax.

Rules for abolishing joint ownership

In terms of determining the rules for abolishing joint ownership, refer to the provisions of the Civil Code.

According to Art. 195 of the Civil Code, joint ownership consists in the fact that the ownership of the same thing is wholly owned by several people.

Pursuant to Art. 196 § 1 of the Civil Code, joint ownership is either joint ownership in fractional parts or joint ownership.

Pursuant to Art. 210 of the Civil Code, each of the joint owners may request the abolition of joint ownership. Pursuant to art. 220 above. of the Code, a claim for the dissolution of joint ownership is not statute-barred. Pursuant to Art. 211 and 212 of the Civil Code, the abolition of joint ownership may take place by dividing the joint thing, and when the thing cannot be divided - by granting it to one of the joint owners with the obligation to repay the remaining ones, or by a civil division consisting in the sale of the joint thing and the division of the price obtained according to the share of the joint owners.

As can be seen, the procedure for the dissolution of joint ownership is aimed at shaping a new state of ownership between the existing joint owners. Most often, the result of the abolition of joint ownership is that the only owner of the entire property remains.

It is also worth pointing to the procedural provisions relating to the abolition of joint ownership. Pursuant to Art. 617 of the Code of Civil Procedure, in an application for the abolition of joint ownership, you should precisely specify the thing that is to be divided and provide evidence of ownership.

In the course of proceedings for the dissolution of co-ownership, the court should persuade co-owners to carry out the division harmoniously, indicating to them the ways that may lead to this (Art. 622 of the Code of Civil Procedure).

Pursuant to Art. 624 of the Code of Civil Procedure, upon the entry into force of the decision granting the existing co-owners of some or one of them the entirety of the property shall pass to the participants indicated in the decision. If, as a result of the division, the whole thing or part of it goes to a co-owner who does not have control over this thing or part of it, the court in the decision on the abolition of joint ownership will also rule on the issue or emptying of the premises on the property by the other co-owners, specifying the date of issue according to the circumstances. things or empty rooms. As a result of the abolition of joint ownership, the item is most often awarded to one person, with a simultaneous obligation to make repayments to the other joint owners. Then the person receiving the given thing in its entirety acquires a part of it in addition to the share in the thing held and entitled to him.

Abolition of joint ownership of real estate against payment

As has already been mentioned, the abolition of joint ownership means that one of the persons acquires full rights to the entire property. On the other hand, from the perspective of the other co-owners, their shares are sold for remuneration.

Consequently, it should be considered how this issue translates into the PIT tax obligation. Note that in accordance with Art. 10 sec. 1 point 8 of the PIT Act, taxable sale of real estate or its part is subject to taxation, if it was made before the lapse of 5 years, counting from the end of the calendar year in which the acquisition took place.

Therefore, it becomes necessary to explain in what legal situations we can talk about disposal for consideration. This concept should be understood as any transfer of ownership or other property rights in return for a financial benefit. As a result, the term covers a wide range of legal acts transferring ownership.

The term "disposal" used in the above provision covers not only the classic cases of transfer of ownership, such as sale, but also any other legal act resulting in the transfer of ownership of real estate (or a share in it) for consideration.

Therefore, the category of the sale of real estate for consideration includes the abolition of joint ownership for remuneration. In this case, the taxpayer is the person who receives the repayment in exchange for shares in joint ownership. A person who sells a share in a joint property for consideration becomes a taxpayer liable to pay PIT if the joint ownership is abolished before the lapse of 5 years, counting from the end of the calendar year in which the acquisition took place.

Example 1.

In 2015, two natural persons purchased real estate for joint ownership in equal shares. Each of the co-owners paid PLN 50,000 each. In 2020, joint ownership was abolished for a fee, pursuant to which one of the partners repaid the other with the amount of PLN 70,000. On the part of the partner receiving the repayment, income is generated from the sale of real estate in the amount of PLN 20,000. The tax rate is 19%.

Finally, it is also worth adding that the dissolution of joint ownership does not constitute an acquisition of goods only if it is part of the share that the former joint owners have in the joint property and took place without repayments and subsidies. On the other hand, if the share of a given person is increased (even without repayments and subsidies), it is treated in the category of acquisition, because in this way both the scope of the current ownership of that person over the thing (real estate) and the state of their personal property are increased. As a rule, the abolition of joint ownership is a form of a new acquisition when, as a result of this abolition, the taxpayer receives a property that exceeds the share he was originally entitled to (interpretation of the Director of the National Clearing House of September 20, 2020, No. 0113-KDIPT2-2.4011.614.2020.1 .KK).

Abolition of joint ownership free of charge

The abolition of joint ownership may also be free of charge. However, such an activity is subject to inheritance and gift tax. As we can read in Art. 1 clause 1 point 4 of the SD Act, the acquisition by natural persons of the ownership of things located on the territory of the Republic of Poland or the property rights exercised on the territory of the Republic of Poland by virtue of the gratuitous abolition of co-ownership is subject to inheritance and donation tax.

The gratuitous dissolution of joint ownership is not subject to income tax. According to Art. 2 clause 1 point 3 of the PIT Act, the provisions of this Act do not apply to revenues subject to the provisions on inheritance and donation tax.

The tax obligation in the inheritance and donation tax is imposed on the acquirer of property and property rights (Article 5 of the Act). The act provides for a number of tax exemptions, so the mere fact of being subject to its provisions and the emergence of a tax obligation does not necessarily mean the necessity to pay the tax.

Pursuant to Art. 4 sec. 1 point 15 of the SD Act, the acquisition by persons included in tax group I of property or property rights by free of charge abolition of joint ownership is exempt from tax. Let us recall that tax group I includes the spouse, descendants, ascendants, stepson, son-in-law, daughter-in-law, siblings, stepfather, stepmother and in-laws.

As a result, there may be situations in which the free dissolution of joint ownership will have neither PIT effects nor effects in inheritance and donation tax.

Example 2.

Father and son purchased a property for joint ownership. After three years, the joint ownership was abolished, under which the son became the sole owner. The abolition of joint ownership was free of charge. There is no taxable income on the father's side, while the son, as a person from tax group I, will be exempt from inheritance and donation tax. If the joint ownership of gratuitous nature is abolished, this activity does not give rise to an obligation with regard to PIT. In principle, it is subject to inheritance and donation tax, and it is possible to apply for a tax exemption in this respect. In conclusion, it should be pointed out that the abolition of joint ownership of real estate may have specific effects in the field of personal income tax. It is important in this case that the dissolution of joint ownership should be payable. In such a case, this activity is treated as the sale of real estate for consideration.