Tax on sale before five years have passed

When the sale is taxable

The disposal of property for consideration, for example the sale of a flat, may be subject to personal income tax if it takes place before five years have passed from acquisition. If you sell the property after this period, the income from its disposal is as a rule not taxed and you do not even have to file a return on this account.

This rule is meant to discourage quick, speculative trading in property, while at the same time not burdening people who sell assets after a longer period of ownership. That is why, before deciding to sell, it is worth first establishing whether the five-year period has already passed — on this depends whether the question of tax arises at all.

How to count the five-year period

The way of counting the five-year period is a frequent source of misunderstanding. This period does not run from the day of purchase but is counted from the end of the calendar year in which the acquisition of the property took place. This means that regardless of the month in which you bought the flat, the counter starts only on 31 December of that year.

In practice the passing of five years therefore falls at the end of the fifth calendar year following the year of acquisition. This rule is of great planning significance: sometimes it is enough to postpone the sale by a few months to avoid the tax entirely. It is worth establishing the acquisition date precisely, because in the case of inheritance or a gift the rules of counting may be more complex.

How the income for taxation is established

If the sale takes place before five years have passed, you pay tax not on the whole sale price but on the income. Income is the difference between the revenue from disposal and the costs of earning it, which include above all the documented acquisition price of the property and outlays that increased its value during ownership.

This means that if you sell the flat for an amount close to the purchase price, the income, and therefore the tax, may be small or not arise at all. The key is gathering documents confirming the costs — the purchase deed, invoices for renovations or modernisations. Without them it is hard to demonstrate the costs and reduce the tax base, so it is worth keeping the documentation from the start.

The housing relief

Even when the sale takes place before five years have passed, the tax can be avoided thanks to the so-called housing relief. It works so that if you spend the revenue from the sale on your own housing purposes within the statutory deadline, the corresponding part of the income is exempt from tax. Housing purposes include among other things the purchase of another flat, building a house or repaying a loan on your own home.

To use the relief you must meet the conditions set out in the regulations, including spending the funds within the specified time and on purposes covered by the exemption, and keep documentation confirming the expenses. Since the details can be complicated and the regulations change, when planning to use the relief it is worth consulting a tax adviser.

Settlement with the tax office

Income from the disposal of property for consideration is settled in a separate annual return filed on the PIT-39 form. It shows both the income for taxation and any amount covered by the housing relief. The obligation to file a return arises when the sale took place before five years had passed, even if you ultimately intend to use the exemption.

It is important to complete the formalities on time and keep documents confirming both the acquisition costs and the expenses on housing purposes. In the event of an inspection, the burden of demonstrating that the conditions of the exemption have been met rests with the taxpayer. A reliable settlement and order in the documents protect you from a dispute with the tax office.

Summary: property sale and tax

The sale of property before five years have passed from acquisition may involve income tax, calculated on the income, that is the difference between the revenue and the documented costs. The five-year period is counted from the end of the calendar year in which the acquisition took place. The tax can be avoided thanks to the housing relief, by spending the revenue on your own housing purposes within the statutory deadline. You file the settlement on PIT-39 and keep documents confirming the costs and expenses.