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Guide to parent purchases

Parenting can be an extensive and overwhelming process. Read the guide to learn more about the tax rules and the rules for renting out housing. Help for buying a house guides you to what you should be aware of before, during and after the purchase.

 

 

As parents, many of us have a desire to help our child/children get on well in life. A parental purchase can be a huge help for the young person.

The process of selecting and buying an apartment can be extensive and overwhelming. Because what about the tax rules and the rules for letting in the case of a parental purchase? Therefore, we guide you to what you should be aware of both before, during and after the purchase.

When you are considering a parental purchase, you should think about what the purpose of the purchase is. Is the purchase driven by the desire to make money yourself? Or buying in the home to give your child a helping hand? Should child number 2 also move into the home in the long term? Should the child/children have the opportunity, in the long term, to buy the home? Do you want to live in the home yourself at some point? How about room for a roomie or perhaps the possibility of increasing the family at some point? How long will your child/children live in the home?

 

Our advice is based, among other things, on the above questions. It is important to be clear about what your purpose is for buying the home, as it can help you choose the right home to invest in.

Parental purchase - what is it?

A transaction is referred to as a parental purchase when parents buy a home and subsequently rent it out to their child/children. There are various advantages for the parents in buying a property to rent for the child. Here can be mentioned:

 

  • The child lives safely and cheaply (you can largely decide for yourself what the child has to pay in rent)

  • Investment, as the home can increase in value

  • You do not have to pay property value tax (because you do not use the home yourself)

  • The child can rent out a room and get even cheaper rent (see more below)

  • The child can receive housing benefit

Parental purchases - what about the tax?

When you, as parents, rent out a home, this is tax-wise equated with being self-employed. You can be taxed according to three different methods: ordinary tax rules, the company scheme or the capital return scheme. Which arrangement is most advantageous in your situation depends on your other financial circumstances.

 

The tax rules are complicated, and we would therefore advise you to get advice on this. If you already have an accountant, this will easily be able to advise you on what is most advantageous. If you do not have an accountant associated with you, we advise based on that. Regardless of your situation, we will find the most optimal solution for you.

 

As the lessor of a home for your child, you are free to decide what the child must pay in rent. However, the rules in the tax legislation are that you are taxed on what corresponds to the market rent, regardless of what the child pays in rent. The market rent is an average level of what similar homes in the area cost in rent. We are experts in tenancy law and are happy to help you find the right level for the rent.

 

If your child pays less than the market rent in rent, the difference is considered a gift. Gifts that exceed the minimum level must be taxed by the child. In 2023, the tax-free gift limit is DKK 71,500 annually per parents. (If the amount exceeds DKK 71,500/143,000, the child is taxed at 15% of the excess amount.)

The child has the option of subletting one or more rooms in the apartment, as this provides a financial advantage for the child and the parents. The child can enter into a subletting agreement where a room / several rooms are rented out to others. It is the child who collects and receives the rent. If the rent for the sublet room/rooms is less than two-thirds of the child's own rent, the child must not be taxed on this income.

Parental purchase - how is the home selected?

Parenting is exciting and complex, as there are many balls in the air that you have to juggle. On the one hand, there is the financial aspect and the risk for you as parents. On the other side, there is the child and their wishes and dreams. In addition, as with any other real estate transaction, there is a whole pile of documents that you have to manage before you buy a property.

 

Most often, you invest in a condominium, and if you have not bought one before, it is also a challenge to understand the rules.

 

Before you choose the home, it is important to have an overview of:

  1. What is the price level in the area. Is the home too expensive, too cheap or just right for the price

  2. What is the rent level in the area. Can be a decisive factor in relation to the operating economy.

  3. What the public assessment. There are tax rules that allow the home to be sold to the child for below the public assessment. Therefore, the public assessment can be an important thing to remember if you have to choose between several homes.

 

I help you to clarify your wishes and needs before you buy a parent-to-own apartment. My experience ensures that you are settled before you sign the purchase agreement. I can help you start the process even before you have looked at the first home.Contact me, for a chat about your options.

What are the rental rules for parent purchases?

Once we have approved the deal on your behalf, we also help draw up a tenancy agreement with your tenant (your child). The lease is not legally binding, but it is a good idea to draw up the lease, as the child can only receive housing benefit if there is a signed lease.

 

As part of the parent purchase package, help to buy a house offers to draw up the lease and ensure that the rent is set at the right level.

 

Your child can sublet parts of the apartment on tax-advantaged terms. If the child sublets parts of the flat, it is crucial to have control of the form requirements in relation to the rules of the Tenancy Act. You must ensure that the tenancy agreement is drawn up appropriately, both in relation to your child, but also in relation to you as the owners of the flat.

 

As part of the parent purchase package, we advise on determining the correct rent level and as an add-on, we are also happy to draw up a sublease contract for you.

Tax rules when selling the home

As parents, you are taxed on any profit you may have from the home, if you have not lived in it yourself. Instead, you can choose to sell the home to your child at a price corresponding to the latest public property assessment of +/- 15%. (If the home has received the most recent property assessment, this range is +/- 20%).

 

If the child subsequently decides to sell the home, it will not be taxed on the profit, provided that the child has lived in the home during the time the child has owned the home.

 

The sale of the home to the child is an advantage if you, as parents, want to favor the child financially (popularly speaking, you can talk about a tax-free gift to the child). Selling to the child does not give you, as parents, a financial advantage, as you are selling it at a price that is lower than the latest public property valuation, and therefore somewhat lower than the price you would be able to get for it in a free trade .

Do you have questions about your parent purchase?

Then you have come to the right place

Contact me for a chat about how I can help you.

 

I'm available by phone every day from 8.00 - 21.00.

Call 9393 0678

Portræt af Nicolai Vinum
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