Taxation of inheritance and donations depends on the relationship between the recipient and the donor or the heir and the testator. Relationships are important to determine which tax group the acquirer can qualify for.
Taxation of inheritance and donations depends on the relationship between the recipient and the donor or the heir and the testator. Relationships are important to determine which tax group the acquirer can qualify for.
As of October 13, 2022, new (higher) tax-free amounts and new tax scales for inheritance and donation tax apply. These changes are a result of a Finance Minister's Decree of October 10, 2022 (Journal of Laws of October 12, 2022, item 2084).
For inheritance and donation tax, three tax groups are distinguished: I, II or III. The tax rate ranges from 3 percent up to 20 percent (it depends on the value of the donation and the tax group to which the taxpayer has been classified). The tax is calculated on the excess of the tax base over the tax-free amount.
Amounts exempt from inheritance and donation tax
Non taxable amounts of the pure value of acquired assets and property rights, as specified in Article 9 (1) of the Inheritance and Donation Tax Law, are:
- 10 434 PLN - if the acquirer is a person from tax group I (spouse, descendants (children, grandchildren, etc.), ascendants (parents, grandparents, etc.), stepson, son-in-law, daughter-in-law, siblings, stepfather, stepmother and in-laws);
- 7 878 PLN - if the acquirer is a person classified in tax group II (descendants of siblings, parent’s siblings, descendants and spouses of stepchildren, spouses of siblings and siblings of spouses, spouses of siblings and spouses);
- 5 308 PLN - if the acquirer is a person from tax group III (other persons).
Within the first tax group, there is the so-called zero tax group. The regulations include the immediate family (spouse, children, grandchildren, parents, grandparents, stepson, stepdaughter, siblings, stepfather and stepmother). From 27th of October 2020, group I also includes charges of foster families, family orphanages, in a care and educational institution or in a regional care and therapy institution. The definition of initials has also been extended to include people who create a foster family, run a family orphanage or work with children in a care and educational institution or in a regional care and therapy institution.
Also the free amounts for donations used for housing purposes have been increased (Article 4(1)(5) of the PSD). The amounts are:
- PLN 10,434 - the limit from one donor,
- PLN 20,868 - the limit from multiple donors combined.
Additionally, further amendments to the Inheritance and Gift Tax Act are currently being processed. On January 26, 2023, the Sejm (the lower house of the Polish Parliament) passed the so-called deregulation act (Act on amending acts in order to eliminate unnecessary administrative and legal barriers), covering several areas of tax law. The bill has been sent to the Senate.
According to the proposed changes, from July 1, 2023, the tax-free amounts would be:
- PLN 36,120 (one donor) or PLN 108,360 (many donors) - if the acquirer is a person classified in the I tax group;
- PLN 27,090 (one donor) or PLN 81,270 (many donors) - if the acquirer is a person classified in the II tax group;
- PLN 18,060 (one donor) or PLN 54,180 (many donors) - if the acquirer is a person classified in the III tax group.
The above proposals, although increasing the tax-free allowances, have met with criticism. In particular, it concerns the emergence of a potential tax obligation for entities organizing collections in which small payments are made by many donors. Currently, if the amount of any donation does not exceed PLN 5,308 (if the acquirer belongs to the third tax group), the tax obligation does not arise. After the possible entry into force of the changes, the limit of the tax-free amount will be applied to the sum of donations.
Changes in tax rates
The Regulation of Minister of Finance of October 13, 2022 introduced changes to the tax scale, i.e. the brackets to which the various tax rates apply have increased. For example, a recipient of a donation from a distant relative can now pay 12% tax up to the amount of PLN 11,128, while previously, after exceeding PLN 10,278, he already entered the 15% rate. At the same time, the 15% rate now applies up to PLN 22,256, instead of up to PLN 20,557 as before.
The provisions of this regulation apply to cases in which the tax obligation has arisen since October 13, 2022, including, for example, donations received since that date, or inheritances whose acquisition was confirmed by a court or notary after October 12, 2022.
The immediate family will benefit from the exemption but deadlines and formalities will also be important
As part of the zero group, the immediate family will benefit from full exemption (no limit), provided that the taxpayer:
- In the case of acquiring the ownership of goods or property rights - within 6 months from the date of the tax obligation;
- In the case of acquisition by inheritance - within 6 months from the date of the validation of the court decision confirming the acquisition of the inheritance;
Will report this fact to the head of the tax office on the SD-Z2 form.
Exceeding this deadline will result in the necessity to pay the tax in full, while if the fact of receiving the donation is revealed as a result of the inspection, the tax rate will be 20% of the value of the acquired property.
Formal requirement to document
A direct transfer from the donor’s account to the recipient’s account meets the requirement of formally documenting the donation and exempting the donation.
The COVID-19 Act and exemption from inheritance and donation tax
In the case of donation of goods or property rights for the fight against COVID-19 or for purposes related to running an educational institution in the case of donating laptop computers, the COVID Act also provides for exemption from inheritance and donation tax. The exemption applies to persons performing medical activities and entered into the list referred to in art. 7 of the COVID-19 Act and inter alia owners of homes for mothers with underage children and pregnant women.
PwC Comment
Despite clear regulations, a taxpayer wishing to apply tax exemptions with inheritance and donation tax should transfer donations carefully, after a thorough review of the changed provisions.
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