Parcel house rule - multiple dwellings

New judgment tax-free profit on sale of private residence and whether one can have more homes available

As you know, when selling a private home, any profit is tax-free if the home has been used as a residence for the owner or his household. The same applies to holiday homes that have been used privately. A new ruling by the Vestre Landsret has decided whether it is possible to have several homes available at the same time.

A sale of one- or two-family houses can be made tax-free if the following conditions are met:

• The property has served as a residence for the owner or his household for all or part of the period of ownership
• The total land area of the property is less than 1,400 m2 or
• Pursuant to the determination of a public authority, the property cannot be given grounds for independent habitation or
• According to the declaration of the Customs and Tax Administration, deconstruction will lead to a significant deterioration in the value of the residual area or existing settlement.

In particular, this is the first criterion that has caused problems in practice.

For holiday homes, a similar requirement applies that the cottage or holiday home must have been used for private purposes during all or part of the ownership period.

1. The housing requirement

There is no requirement for the length of the period of residence. On the other hand, there is a requirement that a real residence must be provided. Not least the many apartments purchased by parents have led to a number of tax-related moves to the apartment. As long as you have continued to have another home available, it has been very difficult to get through with the fact that you have actually moved into the apartment.

Nor have the courts been particularly responsive to an argument that, because of cohabitation problems, a couple has had to go their separate ways when cohabitation has suddenly resumed after a possible sale.

Finally, in practice, it is very difficult to lift the burden of proof of habitation if sales negotiations for the apartment have been opened before the move or where these are initiated shortly after the move.

The requirements that are put forward in practice to be able to accept that the owner has used the house or apartment for habitation are, among others:

• Registration for the National Register
• Water, electricity and heat consumption
• Receipt of mail
• Possible witness testimonies

The shorter the time the owner has lived in the apartment, the harder the burden of proof.

2. New verdict - more homes

The issue of the housing requirement is particularly relevant if you also have a second home available. The crucial question here is whether the detached house rule precludes the possibility that several dwellings can serve as housing for the owner at the same time.

There is no problem if you have lived in an apartment, and then rent it out, and subsequently buy and live in another apartment or detached house. In this case, both apartments will be able to be sold tax-free. The problem arises if you have used only the secondary residence at the same time as the primary residence.

This question has been decided by the Vestre Landsret in a new judgment.

A married couple had a residence in Greenland, where the husband had a job. At some point, the couple bought a property in Denmark. The couple bought the property because it would later use the property for year-round living. The property was then rented out for a period of time. After the end of the rental, the couple with children stayed in the property during holidays, just as the husband used it when he had work assignments in Denmark.

The Ministry took the case to the courts with the main plea that a taxpayer cannot have at the same time two properties that serve as housing for him. The couple had had their residence in Greenland.

The High Court upheld the ministry. The High Court referred to the wording of Section 8 (1) of the Property Deduction Act that the property “.. has served as a dwelling for..” and to the motives according to which the purpose of the detached house rule was to avoid tax considerations preventing owners of owner-occupied dwellings from moving. The High Court found that the residence in Greenland actually served as a residence for the family, even during the periods when the husband or he and the family stayed on the Danish property.

The court also did not find that the property was a holiday home, as it was registered as year-round residence and bought and sold with year-round living in mind, just as it had been leased there.

Our comments

The ruling is an important interpretative contribution to the detached house rule, but the ruling could also have far-reaching consequences for many families, for example, where the family lives and has a registered address in Jutland, but where one spouse works in Copenhagen and lives in a condominium there. The question is whether there is evidence in the argument that the detached house rule prevents you from being able to have two dwellings at the same time. Numerous rulings have previously held that the emphasis on registration for the National Register alone cannot be given. Consideration must also be given to the actual use.

The judgment has been appealed to the Supreme Court. Pending clarification from the Supreme Court, the legal position is that it is not possible to sell a secondary dwelling tax-free when one is registered with the National Register in another dwelling.

In our view, the judgment does not affect owners of more than one summer residence, since there is nothing in the way of using more summer homes privately.

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Disclaimer

‍The above information is for guidance purposes only, and we accept no responsibility for decisions made based on this information without prior individual advice. We accept no responsibility for errors or omissions.

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Article No 2006-51. 9 November 2006

Source: SKM 2006.379 VLD

We do not accept responsibility for any dispositions that may be made on the basis of this newsletter without prior individual advice

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