jcomp pl.freepik.com Donation is the most common way of transferring property in the family. In principle, a donation to a loved one may be exempt from inheritance and donation taxes. It happens that those who do not have a marriage decide to enter into a joint mortgage.
From one of the latest interpretations of individual tax laws we find that in the case of the unpaid transfer of a part of the property that is charged with mortgages, inheritance tax and donations will not pay, also unrelated persons.
The Director of National Tax Information received an application for an individual interpretation concerning, among others, inheritance tax and donations on the tax consequences of the acquisition by way of a donation of participation in a mortgage-bearing property.
The applicant indicated in its application that it has an apartment which is subject to a foreign currency mortgage. The apartment was to be owned by a bank, an applicant and his former partner. The actual value of the property was to be 312,000 PLN, the value of its debt in terms of 342,263.75 PLN.
Since the applicant no longer has anything to do with his former partner, he would like to sign over the entire debt and the apartment. The former partner and the bank, as parties to the agreement, would agree to such a change. The acquisition would be free of charge and none of the parties would receive any repayment or surcharge.
The donations were to be concluded in the form of a notarial act.
If the property is subject to a mortgage where the value of the mortgage exceeds the current value of the dwelling and the parties to the credit agreement are unrelated to the borrower, the free transfer of ownership of the property between these borrowers will not require inheritance and gift tax
Therefore, the former partner would have provided the applicant with a portion of the apartment and debt of 171,131.875 PLN. Consequently, the applicant would find himself in a situation where the current value of the debt would exceed the value of the property, i.e. he would be given the debt. Thus, in the applicant's assessment, half of the share of the said dwelling should not be subject to inheritance and donation tax.
The Director of KIS agreed, pointing out that the inheritance and donation tax in its design is a tax on the free-of-charge increase in assets, and that tax is actually subject to the enrichment of the buyer of goods and property rights.
Thus, if it is taxed on an unpaid increase in assets, it cannot be doubted that the total value of the mortgage should decrease the value of the acquired property and the property rights.
The Director of KIS stressed that not only the property will be transferred to the applicant, but also the mortgage loan, the repayment of which is secured by the mortgage in question.
This will mean that, as a result of the activities described in the application, the assets of the applicant will not only not increase but will even decrease. This will result from the fact that the value of the mortgage corresponding to the gifted share will be greater than the value of the gifted share.
Therefore, the tax base for this donation will be tax on inheritances and donations 0 PLN And that's the same amount of tax.
In conclusion, if the property is mortgaged where the value of the mortgage exceeds the current value of the dwelling and the parties to the credit agreement are unrelated borrowers, then the free transfer of ownership of the property between these borrowers will not require inheritance and donation tax.
On the basis of an interpretation by the Director of National Tax Information of the day 20 March 2020, No 0111-KDIB2-2.4015.2.2020.2.MM
Author: Paweł Boś
Junior Tax Consultant, related to Russell Bedford Poland 2018. Author of numerous articles on legal and tax matters, published in the industry press. Law student at Leon Kozminski Academy in Warsaw