The Inheritance and Gift Tax Act provides special exemptions for persons who inherit landmarks but are not eligible for the exemption for inheritance from family members. But not every heir of an old building or a fine piece of Chippendale or Biedermeier furniture will be exempt from the tax.
Acquisition of landmark real estate through inheritance may be exempt from inheritance tax. Under Art. 4(1)(9)(d) of the Inheritance and Gift Act, acquisition through inheritance or a specific bequest of landmark real estate listed in the landmarks register by persons in the 1st or 2nd tax group is exempt from the tax if the acquirer secures and conserves the property in accordance with applicable regulations. But there are doubts raised about almost all aspects of this rule, except the definition of the set of persons who may enjoy the exemption.
Under Art. 14(3) of the act, the 1st tax group includes the decedent’s spouse, descendants, ancestors, stepchildren, son- or daughter-in-law, siblings, stepparents and parents-in-law. The 2nd tax group includes descendants of siblings, siblings of parents, ancestors and spouses of stepchildren, spouses of siblings, siblings of spouses, spouses of spouses’ siblings, and spouses of other descendants. Other heirs fall within the 3rd tax group and are not covered by the exemption. The rest of the grounds provided by Art. 4(1)(9)(d) generate greater doubts.
Are properties listed only in the conservator’s record covered by the exemption?
The line of decisions concerning listing of the property in the landmarks register as a condition for exemption from the inheritance tax is consistent. The exemption applies only to inheritance of landmark real estate listed as of the date of acquisition of the inheritance in the landmarks register created by the province landmarks conservator, and not merely mentioned in the conservator’s record (Supreme Administrative Court judgment of 14 July 1992, Case SA/Kr 830/92). Moreover, the property itself must be listed in the register; listing of the urban planning and architectural formation of which the property is an element is insufficient (Supreme Administrative Court judgment of 27 January 1994, Case SA/Po 1559/93).
Enigmatic conditions for exemption
Acquisition of real estate listed in the landmarks register will be exempt from inheritance tax if the acquirer secures and conserves the property in accordance with applicable regulations.
Unfortunately, no consistent position has been developed in the case law of the administrative courts or in the legal literature on what actions the heir of landmark real estate must take to show for tax purposes that he is securing and conserving the property in accordance with applicable regulations.
In some judgments concerning this issue, the administrative courts refer to Art. 5 of the Act on Protection and Care of Landmarks of 23 July 2003. Under that act, care of a landmark by the owner or possessor consists more specifically of ensuring conditions for scientific research and documentation of the landmark; conducting conservation, restoration and construction work on the landmark; securing and maintaining the landmark and its surroundings in the best possible condition; use of the landmark in a manner ensuring ongoing maintenance of its value; and promoting and spreading knowledge of the landmark and its historical and cultural importance. Under Art. 28 of that act, the owner or possessor of a landmark listed in the landmarks register or mentioned in the province landmarks record shall promptly (within one month of the occurrence or learning of the occurrence) notify the province landmarks conservator of damage, destruction, loss, theft or endangerment of the landmark, change in the location where a movable landmark is stored, or change in the legal status of the landmark. Therefore, in order to enjoy the exemption, the heir should be in a position to demonstrate that the heir himself (or together with other co-owners) has taken measures qualifying as maintaining or conserving the substance of the landmark (Province Administrative Court in Kraków judgment of 27 April 2011, Case I SA/Kr 256/11). It is not entirely clear whether such actions must take financial form, such as covering the costs of renovation out of the owner’s own funds, or any behaviour by the heir seeking to ensure protection and conservation of the landmark will suffice, such as efforts to obtain funds from other sources to renovate the building or prevent devastation of the landmark (Province Administrative Court in Kraków judgment of 4 April 2012, Case I SA/Kr 126/12).
The Supreme Administrative Court stressed in the judgment of 4 June 2013 (Case II FSK 1990/11) that a taxpayer seeking exemption from inheritance and gift tax under Art. 4(1)(9)(d) of the Inheritance and Gift Tax Act must demonstrate and present evidence showing that he has taken ongoing and systematic actions to secure and conserve the landmark, because the purpose of the tax exemption is to help the owner maintain the landmark property.
An apparently simple solution would be for the heirs to apply to the province landmarks conservator for a certificate stating that the building is being maintained in accordance with conservation requirements and recommendations. It is also important to cooperate closely with the conservator during any renovation work. Any work conducted by the owner independently (without the consent of the conservator) that interferes with the substance of a landmark building may prevent the owner from obtaining a certificate of maintaining the building in compliance with conservation requirements and recommendations. Moreover, even if the conservator does certify that independent construction or renovation work has not interfered with the substance of the landmark, and the property is being maintained in a good technical condition, the tax authority may not recognise the certificate as meeting the standard of “securing and conserving the property in accordance with applicable regulations.” At least that was what the Province Administrative Court in Kraków ruled in Case I SA/Kr 256/11.
However, it can sometimes be very complicated or practically impossible to obtain an exemption under Art. 4(1)(9) of the Inheritance and Gift Tax Act. This applies particularly to a situation where because of the brief period between accrual of the tax obligation (e.g. acceptance of the inheritance) and the filing of the tax return (one month) the heirs do not have any practical ability to properly document that they are securing and conserving the property in accordance with applicable regulations. Sometimes the heirs only enter into possession of landmark real estate many years after acquisition or acceptance of the inheritance, and thus have not had any influence over the renovation or modernisation of the property. Therefore, heirs of real estate should if possible consider the tax consequences of inheritance of landmark property before accepting the inheritance, in order to increase their chances of enjoying the exemption from inheritance tax.
Under Art. 4(1)(9)(c) of the act, there is an exemption from inheritance and gift tax for acquisition by inheritance or a specific bequest of movable landmarks and collections listed in the landmarks register, as well as landmarks lent to a museum for research or exhibition purposes for a period of no less than 2 years. Thus the tax exemption for inheritance of landmark movables does not raise doubts if they are listed in the landmarks register. Unlike in the case of real estate, it is not necessary for the person to fall into the 1st or 2nd tax group to qualify for the exemption. But what if the movable is not listed in the landmarks register, and lending it to a museum for a period of at least 2 years is not possible? Heirs from the 1st or 2nd tax group who inherit along with a home landmark furniture or other items constituting furnishings of the premises do not need to pay inheritance tax. If the furnishings of the home include landmark furniture, the rule concerning inheritance of movables and collections referred to above will apply. Even if furniture is merely stored in a home and is not being used as home furnishings, it should be covered by the exemption under Art. 4(1)(9)(a) of the act, according to the Province Administrative Court in Warsaw judgment of 3 September 2008 (Case VIII SA/Wa 153/08).
The case law and legal literature continue to provide clarification of the conditions for the tax exemption on inherited landmarks. The judgments issued so far on landmark movables display a trend toward resolving doubts in the taxpayer’s favour, while the tax exemption for landmark real estate continues to be interpreted very narrowly.
Aldona Leszczyńska-Mikulska, Jagoda Dobrucka, Private Client Practice, Wardyński & Partners