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Tax in Denmark: Commuter deductions to be increased in 2022

A tax deduction for commuters and an allowance for using a private vehicle for commuting will both be increased in Denmark next year.

Commuter tax deductions in Denmark will be adjusted upwards in 2022 due to high fuel prices.-
Commuter tax deductions in Denmark will be adjusted upwards in 2022 due to high fuel prices.-File photo: Mads Claus Rasmussen/Ritzau Scanpix

The Danish Tax Authority confirmed the changes to commuter deductions in a statement on Tuesday. The decision was made in response to high fuel prices, according to the authority’s statement.

“The background for rates increasing next year is that petrol prices are expected to be higher in 2022 than what was expected for this year,” Jane Bolander, head of the tax authority’s advisory board Skatterådet, said in the statement.

READ ALSO:

The commuter deduction, termed kørselsfradraget in Danish, increases from 1.90 kroner to 1.98 kroner per kilometre for journeys between 25 and 120 kilometres.

The tax deduction is designed to cover the cost of travelling to and from work over a set minimum distance. It applies to rail and car journeys alike. The deduction is always calculated based on kilometres travelled if the journey was made by car, even if it was actually made by train.

You can claim the deduction if you travel over 24 kilometres to get to and from work over (12 kilometres each way, in other words). This only applies on days when you actually travelled from your home to a place of work, and not, for example, for days you spent working from home.

For journeys over 120 kilometres, the deduction for the part of the journey beyond the 120 kilometre-mark will increase from 0.95 kroner per kilometre to 0.99 kroner per kilometre.

Lower rates are available to people who use their bicycles, scooters, mopeds or similar. For these smaller types of vehicle mentioned above, the rate in 2022 will be 0.55 kroner per kilometre.

The deduction is not paid out to commuters but is calculated into the annual tax return or årsopgørelse.

READ ALSO: Denmark releases preliminary 2022 tax returns: Three things taxpayers should look out for

A different tax relief, the befordringsgodtgørelse, is available for commuters who use their private vehicles to get to work (the same conditions for distance travelled apply).

Commuters who use their own car to get to work can claim 3.51 kroner per kilometre back in tax up to 20,000 kilometres used for commuting. That is an increase from the 2020 rate of 3.44 kroner per kilometre. For commutes over 120 kilometres per day, the relief is 1.98 kroner per kilometre, up from 1.90 kroner per kilometre.

Employers are required to check that private vehicles are actually being used for their commutes by staff who are claiming the tax relief. The exact rules for this, detailed on the tax authority website, are unchanged in 2022.

Unlike with kørselsfradrag, the befordringsgodtgørelse is paid out to eligible taxpayers (rather than being integrated into the tax return). The payment itself is tax free.

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PROPERTY

EXPLAINED: Denmark’s new property tax rules from 2024

New property tax rules (boligskatteregler) take effect in Denmark in 2024. How will they affect homeowners and first-time buyers?

EXPLAINED: Denmark’s new property tax rules from 2024

The new tax rules, which will impact property value tax rates (ejendomsværdiskattesatser) and land value tax (grundskyld), were originally ratified by the previous government in a 2017 bill. In general, they mean the rates for both of the above property taxes will fall in most municipalities, according to the Danish tax ministry.

A public real estate appraisal (ejendomsvurdering) forms the basis for taxation of your property. According to the tax ministry, many homeowners will find that new appraisals issued from September 2021 are higher than preceding valuations from 2011 and 2012. That is partly due to increasing house prices in recent years.

In order to avoid much higher property taxes as a result of higher valuations in the public real estate appraisals, the 2017 political agreement secured a reduction of the two forms of property tax, effective from 2024.

Homeowners who appear to be facing higher property taxes due to the new appraisals – even though tax rates will be reduced – can be eligible for a tax subsidy. This can occur in cases where a property has seen a large increase in its valuation.

In short, the new tax rules will not result in taxes for existing homeowners in 2024 that are higher than they would have been if the current rules (still in effect in 2022 and 2023) were to remain in place.

However, the tax subsidy mentioned above does not apply to new homeowners from January 1st 2024. This is because first-time buyers will be expected to “plan their finances in accordance with the new tax rules,” the ministry states.

This could have a knock-on effect on the housing market, according to financial media Finans, which wrote in November 2021 that people buying apartments would be likely to demand reduced prices as 2024 approaches, to offset the higher taxes they are likely to pay.

READ ALSO: Danish apartment sales cool to eight-year low

An analysis by Finans and Nykredit showed that apartment prices in major cities, particularly in and around Copenhagen as well as in Aarhus and Odense, will typically have to fall by around 5-10 percent for total costs for now buyers – mortgage plus tax – to be unchanged compared to the outgoing rules.

The new rules and subsequent increased taxes will hit first-time (in 2024) buyers of apartments hardest, according to Finans. That is because many buyers will not be able to afford the same mortgage they previously could, due to the higher property taxes.

One reason apartments are more likely to get tax increases under the new rules is that the valuation appraisal system left them subject to lower property tax relative to houses.

“Apartments have been too lightly taxed for many years because the land under them is massively undervalued compared to appraisals of detached house land,” Mira Lie Nielsen, housing economist at Nykredit, one of Denmark’s major banks and the country’s largest mortgage lender, told Finans last November.

People buying apartments before 2024 could also push prices down knowing they risk making a loss if they sell shortly after the tax reform takes effect.

From 2024 onwards, the two property taxes – ejendomsværdiskattesatser and grundskyld – will be pegged to appraisals of the property and land value such that if these fall in valuation, so will the property tax.

If the valuation of the property, and thereby the property tax, increases after 2024, homeowners can fix the rate of (indefryse) their taxes by postponing payment of a part of the property tax. The frozen tax payment becomes due (and is calculated) when the property is sold. Alternatively, the increased taxes can be paid in instalments.

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