The sale of real estate before the expiry of five years from its acquisition generally results in an obligation to pay 19% personal income tax. At the same time, Polish tax regulations provide for the possibility of applying the so‑called housing relief, which in practice remains one of the most important mechanisms limiting taxation. Although the rules governing its application have remained relatively stable, practical experience shows that they continue to raise significant doubts, particularly regarding the scope of eligible expenditures and the meaning of “own housing purposes”.
Sale of real estate – basic rules
Under the Polish Personal Income Tax Act, the disposal of real estate is taxable if it takes place before the end of a five‑year period counted from the end of the tax year in which the property was acquired or constructed. After the expiry of this period, the sale falls outside the scope of taxation. If the disposal occurs before the end of the five‑year period, the resulting income is subject to a 19% tax rate.
Housing relief – core principle
Taxpayers may avoid taxation by applying the so‑called housing relief regulated in Article 21(1)(131) of the Personal Income Tax Act. The exemption is available provided that the proceeds from the sale are allocated to the taxpayer’s own housing purposes within three years from the end of the tax year in which the disposal took place.
Scope of eligible expenditures – current practice
The range of expenditures covered by the relief is broad and includes not only the purchase of property, but also activities related to its financing and completion. In particular, qualifying housing expenditures include:
- acquisition of residential property or rights thereto,
- construction, extension, reconstruction or renovation,
- acquisition of land intended for residential construction,
- repayment of a loan or credit facility (together with interest), provided that the financing was obtained before the proceeds from the sale of the property were received and is connected with the taxpayer’s housing purpose.
In this context, particular importance should be attached to Article 21(30a) of the Personal Income Tax Act (in force since 2022), which expressly confirms that the repayment of a loan and related interest may qualify for the relief, including where the financing relates to the property being sold.
Property furnishings – practical approach
Current tax ruling practice and the General Interpretation issued by the Minister of Finance indicate a relatively broad approach to housing expenditures. Expenses relating to property furnishings may also qualify, provided that they are permanently connected to the property. In practice, this may include:
- fitted kitchen units and household appliances,
- built‑in wardrobes and storage solutions,
- installation elements, including integrated lighting,
- bathroom fixtures permanently attached to the property.
This approach significantly expands the practical scope of the relief.
“Own Housing Purposes” – the key criterion
The interpretation of the term “own housing purposes” is of greatest practical importance. According to the current approach of the tax authorities, the crucial requirement is that the property actually serves, or is intended to serve, the taxpayer’s housing needs. This means, in particular, that:
- the taxpayer intends to reside in the property,
- the property is not acquired solely for investment purposes,
- there is a genuine connection between the expenditure and the taxpayer’s personal housing needs.
In practice, demonstrating an intention to reside in the property is especially important. Such intention should arise from factual circumstances rather than from a mere declaration, for example a change of workplace, relocation or family circumstances.
Housing relief and foreign real estate
From a practical perspective, situations involving foreign real estate are becoming increasingly common. The housing relief is not limited to property located in Poland. It may also apply to property situated within the European Union, the European Economic Area or Switzerland, provided that the requirement of serving the taxpayer’s own housing purposes is met. The relief may therefore apply where the proceeds are used for:
- the purchase of real estate abroad,
- the disposal of property located outside Poland.
The fundamental condition remains unchanged: the expenditure must be connected with the taxpayer’s own housing purposes. In practice, this means that the relief may also be available in relation to foreign property provided that:
- the taxpayer genuinely uses the property for residential purposes (whether temporary or permanent),
- the property does not serve exclusively an investment or recreational function.
Current developments
Although the rules governing the housing relief remain unchanged at present, proposals to modify them have recently emerged. These proposals focus primarily on restricting the relief to genuine housing needs and limiting its use for investment purposes. For the time being, however, these proposals remain at the legislative discussion stage and do not affect the current rules.
PwC Comment
The housing relief remains one of the key mechanisms available to reduce taxation upon the sale of real estate. At the same time, its practical application requires a detailed case‑by‑case analysis, particularly with regard to:
- the classification of eligible expenditures,
- demonstrating that the taxpayer’s own housing purposes are being fulfilled,
- proper documentation of the transaction.
In practice, the most significant risk areas and the most common source of disputes with the tax authorities relate to the criterion of actual residential use and the manner in which the property is utilised.
Autorzy:
