A gift? A gift with a lifelong right of residence? Or perhaps a life annuity agreement (umowa dożywocia)? Although the effect of each of these is the gratuitous acquisition of ownership by the acquirer, they produce entirely different consequences and potential obligations for the new owner.
What is a gift of real estate?
A gift is an agreement under which the donor gratuitously disposes of property in favour of the recipient (donee), who acquires that property (e.g. premises or plots of land). In connection with this transaction, the recipient is not obliged to provide any consideration to the donor.
A gift with a lifelong right of residence (personal easement)
The donor may, however, wish to make the gift only on the assumption that they will be able to live in the transferred premises until their death without any payment to the new owner. In such a situation, the notary will also include in the notarial deed a declaration establishing a gratuitous, lifelong personal easement consisting of the right to reside (in whole or in part) in the residential premises or in the residential building situated on the property, and will then file an application to disclose this right in the land and mortgage register. The consequence of establishing such a right is that the donor – even though they are no longer the owner – has the right to live in and use the gifted premises until their death. The donor often feels more at ease, especially where the gifted premises have been their permanent place of residence. This right expires upon the death of the entitled person or when the entitled person waives it before a notary.
Tax on a gift and an easement – when is no tax due?
It is worth noting that both a gift and the establishment of an easement are exempt from inheritance and gift tax if they are made between the persons listed in Article 4a of the Inheritance and Gift Tax Act:
- the spouse,
- descendants (children, grandchildren, great-grandchildren and so on),
- ascendants (parents, grandparents and so on),
- a stepchild,
- siblings,
- a stepfather and stepmother.
It is the notary, not the parties to the agreement, who reports the transaction to the tax office. The notary also reports the changes to the land and mortgage registers and collects from the parties the court fee due, which is then remitted to the competent land and mortgage register court.
The life annuity agreement – how does it differ from a gift?
The life annuity agreement (umowa dożywocia) serves a different function. It gives rise to different obligations for the acquirer, as well as different tax obligations. We discuss this issue in the second part of this article. You are also welcome to contact us in person.