New guidance note: the Tax Agency clarifies the 15% rule

The Danish Tax Agency has issued a new guidance note clarifying the circumstances in which the 15% rule, and the 20% rule under the new valuation regime, may be set aside in connection with property transfers between closely related parties, such as parents gifting real estate to their children.

The guidance note outlines the specific situations in which “special circumstances” may justify an exception to the 15% rule, thereby requiring property transfers to be carried out at full market value. Below, we summarise the key points from the guidance note.

What is the 15% rule?

When transferring property between close family members (for example, from parents to children), Danish tax law generally allows the property to be valued at up to ±15% of the most recent public property assessment without triggering gift tax. However, with the introduction of new valuations, this margin will increase to ±20%.

This framework has provided flexibility and planning opportunities. The new guidance note now offers greater clarity by specifying the situations in which the authorities may deviate from the 15% rule.

New guidance note: How special circumstances are assessed

Whether special circumstances exist is determined based on an overall assessment that considers several factors.

The guidance note specifies that the initial step in determining the existence of special circumstances is to assess whether there are any clear indications that the valuation under the 15% rule fails to reflect the property’s true market value.

If such indications are present, the Tax Agency will then take the following factors into account:

1. The significance of the price difference
   Whether there is a significant difference between the agreed transfer value and the actual market price of the property.
2. The time period between valuation and transfer
   The time period between the reference point for determining the property’s actual value and the transfer under the 15% rule. The Danish Tax Agency holds the view that special circumstances cannot be established if more than three years have passed, unless the price difference is exceptionally significant or the amounts involved are very large.

Other factors that may be considered in the overall assessment include the property’s condition, desirable location, market conditions, renovations, financing and any restrictions.

These factors are considered collectively to determine whether the 15% rule can be set aside in a particular case.

Practical implications

While the new guidance note provides greater clarity, it also increases the responsibility on families and advisors to ensure compliance. For clients considering transferring real estate within their families, it is now more important than ever to carefully document the basis for the transfer price and assess whether any special circumstances may apply.

Our recommendations

To help ensure a smooth and compliant process, we recommend the following:

1. Carefully assess whether the planned transfer value falls within the permitted range under the current rules;
2. Ensure that all relevant documentation is in place to support the chosen valuation and withstand potential scrutiny;
3. Consider the updated guidance note when exploring opportunities to optimise the tax position of your property transfer; and
4. Seek professional advice if you are uncertain how the new rules apply to your situation.

Need assistance?

Specialists from Gorrissen Federspiel’s Real Estate and Tax teams are available to provide guidance and support on matters related to transfers under the 15% rule and other real estate and tax matters.