Many residential landlords spend a significant amount of time researching the pros and cons of various tax schemes. And for good reason, as there are tax savings to be made by understanding the rules.

One of these schemes is called the capital return scheme, and you can learn more about it by reading this blog post. We will cover its pros and cons, among other things, and when it makes sense to use it.

At Reportability, we are experts in residential rentals, tax schemes, regulations, tax calculations, and reporting to the Danish Tax Agency (Skattestyrelsen). We have created a tool that calculates your rental finances, finds all your deductions, and helps you leverage the benefits of the various tax schemes. Finally, it also tells you what you need to report to the tax authorities and how.

You can try the tool for free by creating an account and clicking the button below, or you can read about the capital return scheme for rentals right here.

What is the capital return scheme?

The capital return scheme is a different way of being taxed on your profit compared to the method you are familiar with for your personal income.

In short, a capital return is calculated, which means your personal income is reduced because the calculated capital return is deducted from your personal income and added as capital income.

The clever part is that you end up paying less in tax because capital income is not taxed as highly as your personal income.

The capital return scheme for rentals – pros and cons

The capital return scheme offers several different advantages for landlords:

Advantage 1: You pay less tax on your profit

We have already mentioned the first one, which is that you save money on taxes because you have the option to deduct your capital return from your personal income and move it to capital income. You simply pay less tax on your capital income.

Advantage 2: High deduction value for your interest expenses

The above advantage provides an additional benefit because the deduction value for your interest is increased. You can therefore deduct your interest expenses from the profit and thus achieve a full deduction. However, it is important to be aware that the capital return cannot exceed your profit before interest.

So, if you have interest expenses that exceed your capital return, you will not achieve full deduction value for them, and the advantage is lost. This is also why the capital return scheme is best suited for situations without large interest expenses.

Advantage 3: No requirement from the tax authorities to separate your personal and business finances

A third advantage of the capital return scheme is that the tax authorities do not require you to separate your personal finances from your rental or business finances. This means you spend less time on the administration of your venture.

So, what are the disadvantages of the capital return scheme for rental properties?

The disadvantages of the capital return scheme are typically seen when comparing it to other tax schemes, such as the Business Tax Scheme (VSO). Let’s take a closer look at them here:

Disadvantage 1: You cannot save your profit at a low tax rate

It is a disadvantage that you cannot save your profit as you can under the VSO. With saved profit, you only pay a preliminary tax of 22%, for example. Many people use this to save on taxes by withdrawing the funds at a time when it makes more sense from a tax perspective.

Disadvantage 2: You do not get full tax deduction value for high interest expenses

If you have a large loan on your rental property where interest expenses exceed the capital return, you will not receive full tax deduction value for your interest expenses. You would, however, receive this under the VSO.

Disadvantage 3: The capital return is calculated based on the capital return rate

This is actually both an advantage and a disadvantage, but as things stand right now, it is a disadvantage.

To calculate the capital return, you need to determine the capital return rate, as this rate dictates the crucial calculation. Currently, the rate is 2% (2025 rate), which means you can move 2% of your capital return from your personal income to capital income. If the rate increases, you will once again be able to calculate a significant return.

You can also get an overview of the capital return scheme at skat.dk.

How to calculate the capital return

If you use the capital return scheme for rentals, you must calculate a capital return on your assets. It is this capital return that you can deduct from your personal income and move over as capital income.

The calculation involves first determining the tax value of your business assets in the rental property. This is typically the cash purchase price, including transaction costs.

Next, you must find the capital return rate so you know what percentage of your assets you are allowed to deduct from your personal income.
Finally, you must subtract the value of your capital return from your personal income and add it to your capital income.  

Here is a quick example:

Let’s say you have calculated a capital return base of DKK 3,000,000.

Right now (2025), the capital return rate is 2%. Based on that, if you have a capital return base of DKK 3,000,000, you will end up with a capital return of DKK 60,000.

Please remember that all of this must be reported on your tax return at skat.dk. Reportability provides you with help for both the calculation and the correct reporting to the Danish Tax Agency.

What are the alternatives to the capital return scheme?

There are two alternatives to the capital return scheme for landlords. These are the Personal Tax Act and the Business Tax Scheme, respectively.

You are likely already familiar with the Personal Tax Act from your daily life. These are the rules you know, where your profit is taxed as if it were regular salary. In this case, you pay your standard tax rate of 42–56% on your profit.

With the Business Tax Scheme, you have the option to save your profit at a provisional tax rate of 22% and obtain a full deduction for your interest, regardless of whether it exceeds your capital return. It offers the benefits of the capital return scheme and a little more. Therefore, it is often a smart choice if you have significant debt on the property you are renting out.

You can read more about the Business Tax Scheme in this blog post.

Let us help you

Do you think the capital return scheme sounds like the right fit for you, but find all this talk of tax returns, taxes, and reporting a bit overwhelming?

At Reportability, our online tool ensures that you can easily and securely generate your annual report, where all rules and requirements for the capital return scheme are met.

Simply follow 5 easy steps, enter your figures in the relevant fields, and you will be left with a complete annual report and a summary that tells you exactly which figures to enter into your tax return.

Get started today and create a free account.

‍