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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
First time buyers in Denmark will generally pay higher property taxes on apartments in cities under new rules effective from 2024. File photo:

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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TAXES

How much less tax will Danish commuters pay in 2023?

Higher tax deduction rates for commuters will be introduced from next year. But how much tax can people who travel to work get back?

How much less tax will Danish commuters pay in 2023?

The interest organisation for motorists, FDM, has criticised new rates for commuter tax deductions, saying the amount by which taxes will actually be reduced will be marginal.

FDM says that higher deduction rates will save commuters an average of 30 kroner – enough to buy around 2 litres of petrol at current prices – per year. The figure comes from the organisation’s own calculations.

It should be noted that the size of the tax deduction changes depending on the distance travelled.

The commuter deduction, termed kørselsfradraget in Danish, is designed to cover the cost of travelling to and from work over a set minimum distance. It applies to rail, car, bus and bicycle 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 other means like rail.

Commuters can claim the deduction if they travel over 24 kilometres to get to and from work over (12 kilometres each way). Travel can be registered and deductions calculated within the forskudsopgørelse or preliminary tax return on the skat.dk website.

READ ALSO: Forskudsopgørelse: Why checking your preliminary Danish tax return matters

An equivalent tax relief, befordringsgodtgørelse, is available to commuters who use their private vehicles for work purposes.

The rates for the two deduction types change depending on the distance travelled. You can see the various rates and compare the 2022 and 2023 on the Danish Tax Authority website.

For example, the tax deduction for trips between 25 and 120 kilometres in 2022 is 2.16 kroner per kilometre. It will increase to 2.19 kroner per kilometre next year.

FDM’s consumer economist Ilyas Dogru told news wire Ritzau the organisation did not understand why the travel deductions “are increasing so slightly”.

The organisation based its calculation on a commute of 50 kilometres per day.

The rates for both types of commuter deduction are determined by government organ Skatterådet, a tax council whose responsibilities include deciding certain subsidy rates.

The Tax Council raised the deduction rates based on higher fuel prices as well as increasing maintenance costs for vehicle owners.

They were last increased in April this year in response to spiralling fuel costs following the Russian invasion of Ukraine. The deduction rates are not normally changed during a tax year.

Costs are expected by the Council to continue to increase, and the deduction rates will therefore go up again in 2023.

But the higher deductions do not cover the increased costs experienced by motorists, FDM argues.

“Commuting is important for the mobility of labour,” Dogru said, adding that people are willing to travel further to work if their transport expenses are more adequately covered.

“When we see higher prices in society, that should be reflected in the commuter deduction. And if the price of fuel falls, on the other hand, that should also be reflected,” he said.

Around 1.2 million taxpayers in Denmark claim tax deductions yearly for commuting or for using their private vehicle for work purposes.

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