In 2019, the sale of a flat will be more advantageous in tax terms than in 2018. Under the amended regulations, the group of people who will have to pay tax on the sale of a flat or plot of land will be reduced. What is going to change?
The sale of a dwelling within 5 years of purchase is subject to PIT
The regulations prescribe that if you are selling the property earlier than 5 years from the date of its acquisition (purchase or inheritance), you have to pay the tax. The tax applies to the difference between what we have earned on the sale of the property and the expenses incurred to acquire it.
How to count the 5-year period?
As is sometimes the case in tax regulations, the space-time continuum gets a bit warped and the 5-year period turns out to last nearly 6 years. According to the regulations, the 5-year period starts from the end of the calendar year in which we bought the property.
Example: Mr. John Taxpayer bought an apartment on 20 January 2013. He then sold them on 25 June 2018. In order to sell the apartment without tax, it would have to take place in 2019 at the earliest. The 5-year period starts from 2014!
New rules for counting the 5-year period when selling a property
The new regulations provide that if we are selling a property (apartment, plot of land, etc.) we have inherited, the 5-year period (or in fact the 6-year period) is counted from the acquisition of the property by the testator! What does this mean? This means that we will be able to sell a property sooner without having to pay tax!
Example: Ms Jane Kowalski inherited an apartment from her mother on 2 January 2018. She will sell it in March 2019. Jane’s mother bought the apartment in 1975. Under the amended regulations, even if Jane sells the apartment one year after her mother’s death, she won’t have to pay any tax.
There are even more improvements!
Another two beneficial (!) changes relate to the division of inheritance, division of real estate or division of joint property. In all these scenarios, any changes to the share in real estate will not be treated as a disposal (sale) or acquisition of real estate.
This means that, for example, in the case of a divorce and the award of a real estate that belongs to the joint property to one of the spouses, the 5-year period will be calculated in relation to the entire real estate from the date it was acquired to be included in the joint property. Until now, the tax authorities have argued that the purchase of half of the apartment took place only upon the division of the joint property. This often involved paying tax on a portion of the amount earned from the sale of the apartment.
And what if the 5-year period is not over yet…?
In this case, spending the amount received for our own housing purposes comes to our rescue. According to the regulations, if we spend the entire amount obtained from the sale of an apartment for so-called own housing purposes, we will not have to pay tax. Until the end of 2018, the funds had to be spent within 2 years (counting from the end of the year in which we sold the property). If we sell the property in 2019 onwards, we will have 3 years to spend the money.
What do we mean by own housing needs?
To benefit from the allowance, the entire amount obtained must be spent. We know the types of expenditure “on own housing needs” but, as always, the devil is in the details or, more precisely, in their interpretation.
According to the regulations, expenditure on own housing needs includes, among other things, the purchase of:
- an apartment,
- a house,
- a building plot,
- or expenses for the renovation or construction of a house.
Repayment of a loan contracted for the purchase of an apartment (where you live) also allows you to benefit from the allowance. Remember that the repayment of the loan contracted for the purchase of the apartment you sold will not be eligible for the allowance.
IMPORTANT: The purchase of an apartment for rent does not fall under the definition of own housing needs. Purchase of a dwelling from the so-called Social Housing Association does not qualify for the housing allowance.
The changes introduced should definitely be viewed in a positive light. They are beneficial for those who sell their property and remove, to a large extent, the previous absurdities.