With the life annuity agreement (umowa dożywocia), although its name resembles the agreement popularly called a “gift with a life interest” described in part one, things look quite different.
What is a life annuity agreement?
A life annuity agreement (as defined in the Civil Code) is an agreement under which one party transfers ownership of real estate to the acquirer, in exchange for which the acquirer is obliged to provide the transferor with lifelong maintenance.
The scope of the acquirer’s obligations under a life annuity agreement
In the absence of different arrangements between the parties, the new owner should, pursuant to Article 908 of the Civil Code:
- receive the transferor as a member of their household;
- provide the transferor with food, clothing, housing, light and fuel;
- provide the transferor with appropriate help and care in illness;
- arrange, at their own expense, a funeral for the transferor in keeping with local customs.
The provision sounds archaic, but it is worth noting that its wording has remained unchanged since the introduction of the Civil Code, i.e. since 1965. The idea behind this agreement is the gratuitous transfer of ownership of real estate in exchange for broadly understood care in old age.
Amending the life annuity agreement and converting it into an annuity
It should be noted that the parties to a life annuity agreement may, by mutual consent, voluntarily modify the life annuity relationship. There is nothing to prevent the parties from voluntarily terminating the agreement or changing its benefits. It is also possible to contractually convert the life annuity into a pension (annuity), which will be paid periodically by the acquirer to the transferor in place of the duty of “care”.
Modification of the life annuity by a court in the event of a conflict between the parties
The parties may, however, fail to agree to carry out these acts in the form of a notarial deed before a notary. The provisions of the Civil Code stipulate that where the relations between the life annuitant and the obligated party become such that they make the further performance of the obligations under the life annuity agreement impossible, at the request of one of the parties the court will modify all or some of the rights covered by the life annuity.
Tax on the life annuity agreement – PCC and notarial costs
Unlike a gift agreement (even one with an established right of “lifelong residence”), the life annuity agreement is not subject to the regulations of the Inheritance Tax Act. This agreement falls under the regime of the Act on the Tax on Civil Law Transactions, which means that the acquirer must pay tax on the acquisition of the real estate. It amounts (as with a sale agreement) to 2% of the market value of the real estate. The payment is made at the notary’s, who then remits it to the competent tax office. It is also the notary who 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.
As you can see, these agreements transfer ownership gratuitously, yet they produce entirely different effects and obligations, both under civil law and under tax law. These issues often raise many questions, which we will be happy to answer free of charge. To find out which documents are necessary to conclude these agreements, see the list on the Documents page or contact the office.