If you set the rent too low for your child, you risk having to pay tax on a higher rent than what you have actually received.
This is because the Danish Tax Agency generally expects that rentals to close relatives are made on market terms. If the rent is significantly lower than the market rent, they can adjust the rental income used to calculate your tax.
Can the Danish Tax Agency change my rental income?
Yes.
If the Danish Tax Agency assesses that the rent has been set too low, they can in some cases increase the rental income used as the basis for your tax calculation.
This means that you may end up paying tax on a higher rental income than what you have actually received.
Furthermore, interest may be added to the amount, which can make it extra costly for you.
Why do these rules apply?
The purpose is to ensure that rentals to close relatives are made on the same terms as rentals to other tenants.
This means that, as a general rule, you cannot reduce your tax by renting out the property to your child at an artificially low rent.
How do you set a reasonable rent?
A good rule of thumb is to base it on what similar properties are rented out for in the same area.
You can also look into which rules apply to your specific property, as rent setting depends on factors such as the age of the property and the regulations in the municipality.
How can you help your child financially?
If you would like to support your child financially, it is typically a better solution to:
- set a correct rent
- and then give a monetary gift if you wish to help out financially.
In this way, you generally avoid the tax issues that can arise from an artificially low rent.
Get help with taxes on your rental income
Reportability helps landlords calculate the tax on their rental income and ensures that reporting is done correctly.
The tool helps you, among other things, to:
- calculate the tax on your rental income
- keep track of deductions and rental income
- guide you through reporting to the Danish Tax Agency
- get an overview of your rental finances
In short
When renting to your child, you should generally ensure that the rent corresponds to the market rate.
If the rent is set too low, the Danish Tax Agency may increase the rental income used as the basis for taxation. Therefore, many choose to set the correct rent instead and support their child with a monetary gift.
