Revenue from free benefits (nieodpłatne świadczenia) is one of the most debated categories of Polish personal income tax – PIT. In practice it can take many forms, from classic gifts to more complex legal arrangements. A particularly interesting question is what happens when partners live together in a property owned by only one of them. Does this create a PIT liability for the partner who uses the property? For married couples, similar questions arise, for example, when adding real estate to joint marital property.
The issue is becoming more important as informal relationships grow more common and people become more tax-aware. Many people wonder whether living with a partner in the partner's flat or house could give rise to a tax liability. Answering this question requires a detailed analysis of the rules on free benefits and how they apply in practice.
Revenue from free benefits is taxed under the tax scale set out in Article 27(1) of the PIT Act. It is classified as revenue from other sources under Article 20(1) of the PIT Act. This means it can be taxed at 12% or 32%, depending on the taxpayer's annual income
Legal basis for revenue from free benefits
Under Article 11(1) of the PIT Act, revenue means money and cash equivalents received or made available to the taxpayer in the calendar year, as well as the value of benefits in kind and other free benefits received. This provision is the foundation for taxing all forms of free financial gain.
The term "received" refers to money and cash equivalents actually handed over to the taxpayer directly. The term "made available", in turn, covers funds that the taxpayer can bring under their control by taking some action, without needing further consent from the person providing them.
The PIT Act does not, however, define a free benefit; it only sets out, in Article 11(2) and (2a), how and by what criteria the value of such benefits is determined. As a result, the concept has a much broader scope in tax law than in civil law.
In tax law doctrine, a free benefit has two key elements. First, there must be a legal or economic event resulting in a free financial gain with a specific monetary value. Second, that gain must be obtained at the expense of another person
A free benefit within the meaning of tax law covers not only an act or omission in favour of another person, but also all economic phenomena and legal events that result in a free increase in one person's assets at the expense of another person's assets, with a specific monetary value.
Methods of valuing free benefits
Article 11(2a) of the PIT Act sets out in detail how the monetary value of free benefits is determined. It provides for different valuation methods depending on the nature of the benefit:
- Services within a business - valued at the prices charged to other customers
- Purchased services - valued at the purchase price paid by the provider
- Making premises or a building available - valued at the equivalent of the rent
- Other cases - valued on the basis of market prices for services or for making available things of the same kind
If the benefit consists in making premises or a building available, its value is determined as the equivalent of the rent that would be due under a lease of those premises or that building. This valuation method is key when analysing cases of lending a property for free use (użyczenie)
| Type of benefit | Valuation method | Legal basis | Example |
|---|---|---|---|
| Services from a business | Prices for other customers | Article 11(2a)(1) | Free car repair |
| Purchased services | Purchase prices | Article 11(2a)(2) | Paying for someone's course |
| Making premises available | Equivalent of rent | Article 11(2a)(3) | Lending a flat for free use |
| Other benefits | Market prices | Article 11(2a)(4) | Making a car available |
Revenue from free benefits determined in this way is classified as revenue from other sources under Article 20(1) of the PIT Act. This means the tax scale set out in Article 27(1) of the Act applies, so it may be taxed at 12% or 32%, depending on the taxpayer's annual income.
Lending a property for free use and free benefits
A classic example of a free benefit is a loan-for-use agreement (umowa użyczenia) concerning a property. One person lends their property to another for free use under an express loan-for-use agreement. The borrower then has revenue from free benefits.
Under Article 11(2a)(3) of the PIT Act, the amount of this revenue is the equivalent of the rent that would be due under a lease of the premises. This means a market valuation of similar properties in the area is needed, and the revenue is determined on that basis.
People in tax groups I and II within the meaning of the Inheritance and Gift Tax Act can use the exemption in Article 21(1)(125) of the PIT Act when a property is lent to them for free use. This applies mainly to close family members
It is important, however, to distinguish between a formal loan-for-use agreement and the actual shared use of a property. A loan-for-use agreement involves an express transfer of the right to use the property from one person to another, whereas living together has a completely different legal nature.
In a loan for use, the roles are clear: the lender remains the owner but transfers the right to use the property to the borrower. This creates measurable financial benefits for the borrower, which can be valued precisely using the rents charged on the local market.
Partners living together - legal analysis
Partners living together in a property owned by one of them is fundamentally different from a classic loan for use. Here the owner uses the property together with the partner, which means there is no transfer of an exclusive right to use it.
The key question is whether a specific value can be attributed to the revenue, that is, to the financial gain received by the partner. When people live together, it is hard to identify a measurable financial gain for the partner, because both of them use the property at the same time.
Ms Anna moved in with her partner Marek in a house that he owns outright. They both use all the rooms, share the property's running costs and decide together on the day-to-day running of the household. In this situation there is no one-sided financial gain on Ms Anna's part.
According to the individual tax ruling issued by the Director of the Tax Chamber in Warsaw (acting on behalf of the Minister of Finance) on 30 October 2009, no. IPPB4/415-521/09-2/MP, concerning a cohabiting partner, even if a free benefit were assumed to arise from living together, it would not be possible to determine the amount of taxable revenue
Revenue from things or rights received free of charge arises only where the taxpayer receives a benefit free of charge which, under market conditions, would be received for payment. When partners live together, there is no such market situation that could serve as a reference point for valuation.
Why the value of revenue cannot be determined
The basic problem with trying to tax partners living together is that a specific value of revenue cannot be determined. Article 11(2) and (2a) of the PIT Act require the monetary value of benefits to be determined on the basis of market prices applied in trading things or rights of the same kind and type.
When partners live together, these provisions cannot be applied, because there is no way to determine a market price for rights that by their nature cannot be traded. The rights arising from living together are non-transferable and are not property rights within the meaning of civil law.
In addition, under the interpretation of Article 11(1) of the PIT Act, there is no revenue if the amount received or made available to the taxpayer is not a definitive gain. The essence of taxable revenue is that the financial gain is real, lasting and definitive.
When partners live together, the financial gain is not definitive. The partner using the property acquires no lasting rights to it, and their situation can change at any moment at the owner's will
Features of living together:
- No formal transfer of rights to the property
- Shared use of the property by both parties
- No possibility of valuing one-sided benefits
- Non-transferable rights arising from living together
- No definitive financial gain
Practical aspects of living together
In practice, partners living together have a number of features that distinguish the arrangement from classic legal relationships subject to tax. Above all, both of them take an active part in running the household, which means the benefits of using the property are not one-sided.
A partner living in a property owned by the other person often bears part of its running costs. This may include utility bills, renovation costs, household purchases or other expenses related to running the property. Sharing costs in this way further confirms that there is no one-sided financial gain. Sharing a household also has another side, described in our article on the tax liability of a cohabiting partner.
Another important point is that living together does not create any formal rights to the property for the partner. Unlike a loan-for-use agreement, a lease or other legal relationships, living together does not give rise to rights that could be traded or valued at market prices.
A partner making their flat and their household equipment and items available, which the other person will use together with the owner, is not a source of revenue for personal income tax purposes
Next steps in analysing a cohabitation arrangement:
- Check the legal nature of the relationship between the partners
- Analyse how both parties use the property
- Assess whether any one-sided benefits can be identified
- Try to value any benefits using market criteria
- Verify whether the financial gain is definitive
| Aspect | Loan for use of a property | Living together |
|---|---|---|
| Legal basis | Loan-for-use agreement | Actual cohabitation |
| Nature of use | Exclusive use by the borrower | Shared use by both parties |
| Possibility of valuation | Yes - market rent | No - no reference point |
| Revenue arises | Yes | No |
The tax authorities' position
The tax authorities' position on partners living together was set out in the ruling of the Director of the Tax Chamber in Warsaw of 30 October 2009, no. IPPB4/415-521/09-2/MP. The ruling states that even assuming a free benefit arose, it would not be possible to determine the amount of taxable revenue.
The tax authority stressed that revenue from free benefits arises only where the taxpayer receives a benefit free of charge which, under normal market conditions, would require payment. When partners live together, there is no such comparable situation.
In addition, according to the authority, Article 11(2) and (2a) of the PIT Act cannot be applied, because there is no way to determine a market price for rights that by their nature cannot be traded.
In that ruling the authority held that living with a cohabiting partner does not create a tax liability for the partner using the property. The key arguments were the absence of a gain with a specific monetary value and the impossibility of determining the value of any revenue from free benefits
This position is of significant practical importance for unmarried couples, although an individual tax ruling formally protects only the applicant who followed it (Article 14k § 1 of the Tax Ordinance Act (Ordynacja podatkowa)). For the same facts, however, it indicates that living together, as a rule, does not require any tax settlements or additional tax returns. If you do run a business, we can keep its KPiR, VAT records and returns for you – see our bookkeeping services.
Differences between living together and other arrangements
To better understand what is specific about partners living together, it is worth comparing it with other ways of making a property available, which as a rule are taxed as revenue from free benefits (subject to exemptions, e.g. Article 21(1)(125) of the PIT Act). Making assets available free of charge can also be contentious between companies – we write about it in asset transfers between related parties and PCC tax.
A loan for use of a property involves a formal transfer of the right to use the property from one person to another. The lender keeps ownership but temporarily transfers the right to use the property. This creates measurable benefits for the borrower, which can be valued using market rents.
A rent-free lease is a situation where the parties call the agreement a lease but the landlord waives the rent. Rent is, however, an essential element of a lease (Article 659 § 1 of the Civil Code), and free use of a thing is a loan for use (Article 710 of the Civil Code) – so such an agreement will be treated as a loan for use. The user acquires a formal right to use the property, which is a measurable financial gain subject to tax.
An example of the difference: Mr Tomasz concluded a loan-for-use agreement with his daughter for his flat for the duration of her studies. The daughter acquired the exclusive right to use the flat and pays only the utility bills. In this situation there is revenue from free benefits, but the daughter can use the exemption as a person in tax group I.
The key difference between living together and formal agreements is that no rights to the property are transferred. When partners live together, the partner acquires no rights that could be valued or traded
Typical features of the different ways of making a property available:
- Loan for use: formal transfer of rights, possibility of valuation, revenue arises
- Rent-free lease: an agreement called a lease but without rent (in substance a loan for use), measurable benefits, taxation
- Living together: no formal rights, shared use, no taxation
- Gift of a property: permanent transfer of ownership, inheritance and gift tax
