You have just bought an apartment or a house that you want to rent out. Perhaps you bought it to provide a good home for your child, or maybe you bought it as an investment. Regardless of your situation, you cannot simply set the rent however you like.
When setting the rent, there are a number of requirements you must be aware of. For example, you cannot set the rent too low to help your child. On the other hand, you cannot set it too high to maximize your profit. Both scenarios can cost you money you don't want to lose.
We know the rules in this area, and we can also help you calculate the tax, claim all deductions, and report everything to the tax authorities so that everything is handled correctly.
Main rules for setting rent
Main rules for setting rent
As a general rule, there are three methods for setting the rent:
- Cost-based rent
- Rent based on the value of the property
- Free market rent
Which method you should use depends on various factors, each of which points you toward a unique set of rules regarding rent determination. These factors depend on the municipality where your rental property is located. The age of the property also affects the rules for setting the rent.
Below, you can see which method you should use depending on the municipality and the age of the property.
- The property is in a regulated municipality (cost-based rent)
- The property is in an unregulated municipality (rent based on the value of the property)
- The property was built after December 31, 1991 (free market rent)
First and foremost, it is important to look at when the property was built. If it was built after December 31, 1991, the rent is set freely, regardless of whether the property is located in a regulated or unregulated municipality.
Rent determination in regulated or unregulated municipalities
If your property was built before December 31, 1991, your rent determination depends on whether your rental property is located in a regulated or unregulated municipality.
Most municipalities in Denmark are regulated. In regulated municipalities, it is mandated that landlords must set the rent according to the rules for cost-based rent. The rules for this type of determination were previously described in the Housing Regulation Act, but this was merged with the Rent Act in the summer of 2022.
Municipalities that have adopted regulation ensure that the rent is reasonable and does not spiral out of control, as the cost-based rent must be set so that it does not exceed typical operating expenses by an excessive amount.
In unregulated municipalities, rent is determined according to the rules for the value of the rented property. This means that the value of the rent is determined by comparing it with similar rental properties based on factors such as location, size, quality, and maintenance condition.
If, on the other hand, your rental property was built after December 31, 1991, the rent can be set according to free market rent.
Cost-based rent
Cost-based rent applies in regulated municipalities for rental properties in buildings constructed before December 31, 1991.
With cost-based rent, the rent is determined based on your operating expenses, such as taxes and duties, administration, insurance, and renovation and maintenance. This does not mean that you cannot make a profit on your rental. The rules also state that you are entitled to add a surcharge, allowing you the opportunity to earn a profit from your rental.
To determine the rent, you add up all your annual operating expenses and divide by 12. You now have the cost-based rent, and to this, you can add up to 7% of the property's public valuation as of April 1, 1973, from the 15th general assessment of the country's real estate.
Rent based on the value of the rented property
If your rental property is located in an unregulated municipality, you can set the rent based on the value of the rented property. When setting the rent this way, it is calculated based on what similar rental properties of the same condition, size, and area cost.
If your rental property is, for example, in significantly better condition than the homes you are comparing it with, you can set the rent higher. You can use BoligPortal, among other tools, to research the prices of similar rental properties.
Free rent determination (market rent)
If your rental property was built after December 31, 1991, you are free to set the rent. This means that the rent is an agreement between you and your landlord and therefore does not have to follow the same rules we reviewed above.
It may seem tempting to set a very high rent, but even if the rent is free, you cannot simply set it unreasonably high. If the rent is so high that it is unreasonable or contrary to fair business practices, the rent/agreement can be set aside either in whole or in part.
What are the consequences of setting the rent too high?
If you set the rent too high, your tenant can file a complaint with the Rent Control Board. If the tenant wins the case, it can be expensive for you as a landlord.
For example, you may have to pay a fee of more than 6,827 DKK (2024) and refund the amount you overcharged in rent, retroactive for 12 months.
How do I set a reasonable rent?
Now you know the rules for how to set your rent, but even if you have read through them and understood most of it, it can still be a bit difficult to set the rent.
However, it is important that you set the rent correctly from the start to avoid mistakes and financial losses in the long run.
If you are in doubt about how to determine a reasonable rent, we recommend the following:
- You rarely go wrong if you set the rent based on the level of comparable rentals, regardless of which rules you must follow. This is partly because the rentals currently on the market reflect an acceptable and, in many cases, an already approved level regarding the rent amount.
- Get pre-approval from the Rent Tribunal. To avoid disputes, landlords can have their rent pre-approved by the Rent Tribunal for a fee. In 2024, this costs 596 DKK and can save the landlord from financial losses and complaints.
You can read even more about rent in the Rent Act here.
How much can I charge for renting out my house?
Let's be as specific as possible and say that you have a house you would like to rent out. How much can you charge in rent?
First, you can check what type of municipality your house is located in.
If it is in an unregulated municipality, you can follow the rules for setting rent based on the value of the lease. In this situation, you can go to BoligPortal to check what similar rentals in the same area cost. Depending on the condition of your rental property, you set the rent around the level you find for similar rentals in the same area. There is, however, one exception to this rule. If your property was built after December 31, 1991, you can set the rent freely according to market rent.
If your rental property is in a regulated municipality, you must first determine whether the property was built before or after December 31, 1991. If it was built after December 31, 1991, the rent can be set freely according to market rent. But if that is not the case, you must set the rent using the cost-based method. This means that you must multiply your monthly operating costs by 12, and to that amount, you can add 7% of the property's official value from the 15th property assessment.
If you are renting to your child or your parents
If you are renting to close relatives, such as your child or your parents, you must also be careful to set a reasonable rent.
In that case, it can be tempting to set a low rent so that your child or parents have more money to spend. However, you cannot simply set an excessively low rent, as this can have consequences. Rental activities must be conducted with the intention of making a profit, and if the Danish Tax Agency (Skattestyrelsen) believes you are not charging enough rent, you will be taxed on the additional amount they believe you should have charged.
This is something you generally want to avoid, as you would then have to pay tax on money you have not received. The amount will also be subject to interest, so it is better, for example, to set the correct rent and potentially give monetary gifts to your child instead. This way, you can support them financially while avoiding additional taxation. For instance, you can give gifts of up to approximately DKK 70,000 per year before they become subject to tax.
Read more about the rules for parental purchases or reverse parental purchases.
Do you need help with taxes and deductions for your rental property?
If you are also unsure about which deductions you are entitled to, or which boxes to fill out on your tax return regarding maintenance, improvements, etc., Reportability is the right tool for you.
At Reportability, you can get help with your rental accounting, claim all the deductions you are entitled to, and get help with all tax schemes. If you have any questions, you can always get help from our accounting-savvy staff in the chat.
Once you have completed the tool's 5 steps, you will receive a complete guide that tells you exactly how to report your rental income in the tax return boxes. We have incorporated all the rules into the tool, ensuring you follow them to the letter when reporting your rental income to the Danish Tax Agency.
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