Due to expensive rent and shortage of cheap accommodation for students in the largest Danish cities there is an increasing trend for parents to buy an apartment in order to let it to their children for an advantageous price. Letting property is categorized as a business according to Danish law. People who do business without establishing a company, can choose between three ways of tax regulation. The most used regulation, in Danish called “personskatteordning” (PSO), is the basic set up, where the profit is included in the income tax return. The second one, in Danish called “kapitalafkastordning” (KAO), enables the return on investment to have a lower tax rate, demanding a higher level of administration. The third one, in Danish called “virksomhedsordning” (VSO), enables the interest expenses to have a higher tax rate, resulting in the most profitable tax regulation and the greatest level of administration.
VSO and KAO will get phased out starting in 2021 for parents who let property to their children, which will result in the parents no longer having the opportunity to get a fiscal advantage. However, the parents are able to sell the property to their children for the price of the public tax assessment of real property reduced or added with 15 %, without generating taxes on gifts. Combined with the rules of one-family houses, in Danish called “parcelhusreglen”, the children can buy the property for a good price and sell it for a better one afterwards without paying taxes of the profit.
This paper will analyze and discuss the consequences of the regulation mentioned above, and account for the opportunities the parents have to either keep on letting the property to their child or someone else, to sell the property for a good price to their child or to sell the property to a third person for the market price. The analysis will contain a fictive case to display a real-life situation in which the choice of set up is demonstrated. Furthermore, the paper presents how the set up can change the fiscal consequences. The conclusion finds that the parents who let property to their child, will not suffer economically due to the low effect caused by the low interest. Also, the parents who buy property to let to their children are generally better off economically. Owing to the low interest, the difference between the setups will not be essential, and therefore it seems attractive to buy property for one’s children in the future. The paper includes a guide for parents who own an apartment and for parents who is considering buying one in the future and finally, a perspective on the law that will regulate the phase-out.