Malene Overgaard
Partner
Copenhagen
Newsletter
by Rune Erskov Hendriksen and Malene Overgaard
Published:
In Danish law, when transferring real estate as a full or partly gift between close family members or as inheritance the so-called “15%-rule” can be applied.
This rule states that it is possible to transfer real estate within a span of +/- 15% of the public property assessment. When, in the near future, the new public property assessment system generates final (generally higher) assessments, the rule will be changed to +/- 20%. The rule has been widely applied for many years but within the last years practice has been tightened so that the rule does not apply if “special circumstances" are relevant for the real estate being transferred.
Several rulings have established what such “special circumstances” include. Generally, this includes purchase of the real estate from a third party at a significant higher price within up to three years prior to the family transfer. Also obtaining large mortgage loans in the real estate shortly after the transfer or selling the real estate to a third party at a much higher price shortly after the transfer, and if siblings to the child receiving the real estate receive large gifts at the same time as the transfer are generally all seen as “special circumstances”. On the other hand, the fact that other real estate in the area has been sold at a much higher price is not seen as a special circumstance for the particular real estate being transferred. This is soon as the risk of the Danish authorities for not having valued the particular real estate correctly.
On 30 November 2023, the Danish Supreme Court came with a verdict that elaborates further on these special circumstances.
In the relevant case before the Supreme Court, a parent transferred four properties to his two children by partly gifting the properties and by them taking over the existing mortgage loans. The public property assessment of the four properties was just under a total of DKK 16 million. The mortgage loans accumulated to more than DKK 24 million, while mortgage loans normally amounting to a maximum of 80% of the total value of a property assessed by the mortgage provider.
The Supreme Court ruled that special circumstances can be present, if the mortgage debt shows that the public property assessment is too low. The court also stated that mortgage debt which significantly exceeds the public property assessment will typically be considered special circumstances prohibiting the use of the 15%-rule.
The court stated that this is assessed on a case-to-case basis. The difference between the mortgage debt and the public property assessment and the timespan between the valuation to obtain the mortgage loan and the transfer of the property for the four properties being one month and between 15-25 months are included in the assessment. It is not important whether the mortgage loan is granted before or after the latest public property assessment.
On this basis, the Supreme Court concluded that the +/- 15%-rule could not be applied in the transfer of the four properties.
The whole verdict is available here (in Danish).
On a sidenote, it should be mentioned that the Western High Court in November 2023 ruled that real estate held by professionals which is covered by the special Danish tax rules for “næringsejendomme”, also is covered by the +/- 15%-rule. Being a professional within real estate that is covered under these special tax rules is not considered a special circumstance in itself. However, this ruling has now been appealed to the Supreme Court.