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So you missed Denmark’s July 1st tax deadline. Now what?

Outstanding tax payments in Denmark were due July 1st, but if you have missed that deadline here is what you can do.

So you missed Denmark's July 1st tax deadline. Now what?
Photo: Skattestyrelsen

Last year presented a number of situations likely to impact outstanding tax liabilities for Danish residents. 

In a year where more people than usual experienced unemployment changes, there are ample scenarios where outstanding tax might be due, from taxing holiday pay in connection with a job change, lower income than expected due to job loss, to using your primary tax card for two different jobs in the same period.

Perhaps your transport deduction between home and work was less than anticipated after many months of remote work, or you’ve jumped on the hot housing market as either a buyer or seller (both of which can impact your tax assessment). 

Maybe you’ve profited from investments during a record year for most stock markets. Another possibility? You sent the payment via online banking before July 1st, but it wasn’t deducted from your account by the deadline.

Regardless of the cause, missing the July 1st outstanding tax deadline can be stressful.

Here’s what happens next.

What happens when you miss the outstanding tax deadline?

Well first of all there’s no need to panic – missing the deadline doesn’t mean that you will be dragged off to a debtor’s prison.

If you haven’t paid outstanding tax by July 1st, the Danish tax authority Skattestyrelsens will include your outstanding tax for 2020 in your preliminary tax assessment for the following year.

However they will add an additional 3.8 percent interest on top of the 1.8 percent interest that accrues between January 1st and the July 1st deadline, so you will end of paying more. 

This will be factored into your monthly tax payments throughout 2021. The maximum interest Skattestyrelsens will tack onto next year’s taxes is 21,798 kroner. 

Amounts beyond that are charged in three installments, usually in August, September and October 2021. Skattestyrelsens will send a message to your e-Boks when the first installment is due. It’s possible to set up direct debit, Betalingsservice, and pay the installments automatically.

What about tax deadline extensions related to Covid-19?

Although the outstanding tax deadline remains July 1st, the deadline to correct your tax assessment for 2020 has been extended from May 1st to September 1st. 

When you correct your tax assessment ahead of September 1st, your new outstanding tax will be calculated but will include both the 1.8 percent daily interest and the 3.8 percent additional interest.

If you owe more than 21,798 kroner, your three installments will begin the following month. Exact amounts and due dates will be sent to your e-Boks.

How can I avoid interest on my outstanding tax payments in the future?

To avoid outstanding tax due next year, check to see if your preliminary income assessment for 2021 is correct. 

Keep in mind that paying outstanding tax between January 1st and July 1st is still subject to interest, 1.8 percent, from the first of the year until the day you make your payment.

If circumstances prevent you from correcting your preliminary income assessment before January 1st, it’s still wise to pay outstanding tax as soon as possible to limit accrued interest. 

Payments can be made within the online tax website, TastSelv, by selecting ‘Betal skat’ (pay tax) and the year you’re paying for. Payments can be made by Dankort, via online banking, or even from a foreign bank account.

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PROPERTY

EXPLAINED: How to restructure and reduce your mortgage in Denmark

Denmark's unique borrowing system has enabled thousands of people to restructure their mortgages this year, cashing in on high interest rates which have caused a drop in market value of covered bonds. We explain how it all works and how you can potentially pay off a sum of your mortgage.

EXPLAINED: How to restructure and reduce your mortgage in Denmark

How does the mortgage system work in Denmark?

Denmark has a unique mortgage model, which is regarded as one of the best in the world.

When you take out a loan to buy a house in Denmark, the bank finances the loan through a covered bond [Danish:realkreditobligation,ed.] What makes the model unique is that you as the borrower know exactly what covered bond is issued to finance the loan.

“This direct link is very special to Denmark,”  Peter Jayaswal, executive director at Finans Danmark told The Local.

“You can follow what the market price is for the bond that is funding your loan in the capital market. A German borrower for example has a mortgage by the German bank issuing a loan using a covered bond. But there is no link, so the homeowner doesn’t know what the bond is.

“In Denmark, you can see it exactly. You can go onto your bank website everyday and follow the market price. That means that we have this early repayment system where I as a borrower am allowed to prepay my loan by buying back at market price the bond that has funded my loan,” Jayaswal explained.

When interest rates are increasing, it means that the price on the bonds is decreasing and this is why thousands of homeowners in Denmark have bought out their bonds this year, at a low market value and paid off a portion of their mortgage. 

READ ALSO: Interest rates encourage Danes to restructure mortgages

So how can I make this early repayment on my mortgage?

The first thing to do is to set up a meeting with your bank so they can assess whether you will benefit from the drop in bond value.

The market price of covered bonds is well documented in Danish media but you can also follow them on your bank’s website or by asking for an appointment with your bank to assess your current mortgage.

“You may at some point in the past have taken out a mortgage of 1 million kroner with a one percent fixed interest rate. To keep it simple, let’s say the loan is without amortisation.  When you took out this mortgage, the bond was issued at 99 kroner meaning that the nominal debt will be around 1,010,100 kroner to give a 1 million kroner revenue.

“Today you can see the interest rates have increased and the price on the bond financing your loan is say 80 kroner. As a borrower you can buy the bond in the market at market price and prepay the mortgage loan. But you only need to take out a new loan of around 808,000 kroner to do this.

“So you can take a new loan out at 808,000 kroner and use this to repay your existing loan and reduce your debt by around 200,000 kroner. This transaction can be done simultaneously by your bank, so you won’t end up with two loans,” Jayaswal told The Local.

What about interest rates on my mortgage?

The interest rate you get for your mortgage can be fixed or variable and they mirror the prices investors pay for the bonds. 

Fixed rate mortgage

Today, the fixed interest rate is five percent. This means that if you decide to buy your bond at the lower market value, you will have to take out a new loan at a higher interest rate.

“Using the example of reducing your mortgage by 200,000 kroner by buying the bond at a low market value, every month you are now paying an interest rate of five percent fixed term, rather than your one percent you had before. So you are paying more each month for the benefit of paying off a portion of your mortgage early and the benefits will decrease over time. 

“You usually break even after around ten to fourteen years but the bank will calculate this for you,” Jayaswal said.

“If you know you’re moving in two to three years, it makes sense to get a new loan with a higher interest rate because you’ll have to repay the loan anyway when you move. But if you think you’ll be in your home a long time, keeping this loan, then you need the interest rate to decrease in ten to fourteen years.

“And that’s the problem because we must be frank and say we can do all the forecasts but in the end no one knows what future interest rates will be, so it has to be the decision of the borrower,” Jayaswal explained.

Variable rate mortgage 

The other option is to take out a variable interest rate mortgage to buy the bond, which today is around three percent. However this carries a risk, as the interest rates are adjusted on a regular basis. F3 loans, for example, are adjusted every three years, while F5 loans have adjustments every five years.

“Changing from a fixed to variable interest rate, to reduce your debt and avoid an increase in interest rate, comes with a risk that you don’t have a fixed rate for 30 years, so you are more exposed and that’s very important be aware of,” Jayaswal told The Local.

On Monday, the company Totalkredit, the largest provider of real estate loans for private homes, auctioned flexible loans with resulting interest rates exceeding 3 percent on the F1, F3 and F5 loan types. That means the interest on these types of mortgages will be at their highest for several years.

According to Finans Danmark, Danish home owners have repaid 337 billion kroner of their mortgages in the first three quarters of 2022. Many of these home owners have chosen to switch to variable interest rates. You can swap back to a fixed-rate mortgage at any time but you also have to be aware that these rates may have increased by then too. 

How do I decide which option to take?

“I always say to people, feel free to go to your bank, ask them to make the calculations for you, so you have the foundation to make a decision”, Jayaswal says.

“Some might think a 30-year mortgage at a fixed rate of one percent is great, especially because today interest rate is five percent. Others won’t mind paying a five percent interest rate for a few years, because they want to reduce their debt today and believe interest rates will decrease. It is up to the borrower to decide.

“It’s not that one option is better than the other, it’s that you have opportunities and this is unique in Denmark,” Jayaswal said.

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