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Article:

Holiday homes – Danish tax implications

24 February 2017

Liberalisation of pensioner’s application of Danish holiday homes initially seemed to have adverse tax implications for pensioner’s living abroad. However, new guidelines will neutralise these effects.

Generally, Danish holiday homes are not allowed to be used as the owner’s primary residence meaning that it is generally not allowed to use Danish holiday homes all year.

However, pensioners, who have owned their Danish holiday home for at least eight years are allowed to use the holiday home as the primary residence and live there all year.

Recently, the Danish government proposed a bill seeking to liberalise the application of holiday homes in Denmark for pensioners.

One purpose of the bill is to assist in creating more life and development in areas with high density of holiday homes, which will create growth in the local economy, particularly the tourism industry.

The proposed bill seeks to liberalise the application of holiday homes in Denmark for pensioners by reducing the current requirement of eight years’ ownership to one years’ ownership. This will allow pensioners to use their Danish holiday home as primary residence and to live there all year.

However, the proposed bill could have adverse Danish tax implications for some pensioners living abroad. This is to do with the fact that Danish tax residence for individuals are largely dependent on whether the individual has an all-year home available in Denmark.

Currently, the Danish tax authorities are considering holiday homes owned by pensioners for at least eight years similar to all-year homes in relation to the rules on tax residence due to the fact that the owner is allowed to live in the holiday home all year.

The proposed liberalisation implies that pensioners living abroad, who have owned their Danish holiday home for at least one year but less than eight years suddenly could risk becoming resident in Denmark for tax purposes depending on the extent of their stay in Denmark and the activities undertaken in Denmark.

Similarly, breaking Danish tax residence for pensioners relocating abroad could require disposal of the Danish holiday home contrary to the current situation.

Adverse effects of these issues would primarily affect individuals living in countries that have not concluded a double tax treaty with Denmark - e.g. France and Spain.

However, subsequent to the proposal of the bill, the Danish tax authorities have published draft guidelines in order to avoid these adverse tax implications.

According to the draft guidelines, when the proposed bill has been adopted and the new law has taken effect, a Danish holiday home will not be considered an all-year home in relation to the rules on tax residence solely due to the fact that it has been owned by a pensioner for at least one year.

Similarly, the draft guidelines allow pensioners, who have been deemed resident in Denmark for tax purposes solely because their Danish holiday home can be used all year after eight years’ ownership, to have their tax assessments reopened.

However, the taxpayer must substantiate that the status as tax resident has been imposed solely because the Danish holiday home can be used all year after eight years’ ownership. Further, it must be substantiated that the holiday home has only been used for holiday purposes for the owner and/or the owner’s spouse for the entire period of ownership.

 

The above article is taken from tax:watch, our electronic English newsletter on Danish Tax and VAT matters. tax:watch is issued on the last Friday of each month and is free of charge. Please sign up here.