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Article:

Update on holiday homes and the Danish tax implications

28 July 2017

Anders Kiærskou , Manager, Tax |

New guidelines have been issued to mitigate adverse tax effects of the liberalisation of pensioner’s application of Danish holiday homes.

In the February 2017 issue of tax:watch, we described how liberalisation of pensioner’s application of Danish holiday homes initially seemed to have adverse tax implications for pensioners living abroad.

However, new guidelines were being prepared in order to neutralise these effects.

On 15 June 2017, these guidelines were issued – subsequent to the parliament’s adoption of the bill liberalising pensioner’s application of Danish holiday homes.

Background

The adopted bill liberalises the application of holiday homes in Denmark for pensioners by reducing the requirement of eight years’ ownership to one years’ ownership in order for pensioners to use their Danish holiday home as primary residence and to live there all year.

The Danish tax authorities have long considered 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 amended law 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 situation before the amendment.

Adverse tax 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, the new guidelines mitigate these adverse effects.

According to the guidelines, a Danish holiday home will not be considered as 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 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.