Bachmann/Partners Law Partnership has recently assisted a taxpayer in a case concerning whether the taxpayer was the beneficial owner of real estate. The Tax Agency had ruled that the taxpayer was the beneficial owner of the property. After substantial documentation regarding the establishment of ownership and the ongoing operation of the property was presented, the Tax Agency’s decision was overturned by the tax appeals board. Subsequently, the taxpayer was to be considered only as the formal owner and therefore should not be subject to capital gains tax upon disposal of the formal ownership share.
When is one the Beneficial Owner of Real Estate? The very short answer to this question is that if you are listed as the registered owner of a property, the clear starting point is that you are also the actual owner of the property. If you claim that the land register does not reflect the true ownership, you must prove that you were not the actual owner of the property at the time of sale. The burden of proof is strict. This can be derived from a 2021 judgment from the Eastern High Court. In the 2021 case, the taxpayer succeeded in meeting this strict burden of proof.
Bachmann/Partners Law Firm has recently assisted a taxpayer in a case involving a similar issue, where it was also possible to meet this strict burden of proof.
The situation was that a married couple — A and B — wished to acquire a property in 2011. The couple obtained most of the financing through a family loan from A’s family. The remaining part of the purchase price was to be financed with a mortgage loan covering about ¼ of the price. The couple’s bank found that their creditworthiness was insufficient and therefore required that B’s sister, C, be registered as owner of 1/3 of the property and be listed as debtor on the mortgage loan. Beforehand, the couple and C had asked the bank whether a guarantee from C could be an alternative. The bank rejected this, as it did not use guarantees in consumer-related cases.
After purchasing the property in 2011, two additional mortgage loans were taken out. The proceeds of these loans went solely to A and B. The ongoing costs related to the property — for example mortgage payments, property taxes, insurance, and electricity, water, and heating — were borne exclusively by A and B.
Efter erhvervelsen af ejendommen i 2011 blev der to gange optaget yderligere realkreditlån. Provenuet fra disse lån tilgik alene A og B. De løbende udgifter ved ejendommens drift – f.eks. prioritetsydelser, ejendomsskatter, forsikringer og forbrug af el, vand og varme – blev udelukkende afholdt af A og B.
C had never lived in the property and had not received deductions for interest expenses on the mortgage loans.
In 2023, A, B, and C wanted C to be released from her formal ownership of the property. A request for a binding ruling was submitted to the Danish Tax Agency, asking whether the Agency could confirm that C would not be taxed when her formal ownership ended. They also asked whether the termination of C’s formal ownership would have tax consequences for A and B.
The Danish Tax Agency answered both questions in the negative.
The Tax Appeals Board reversed the Tax Agency’s decision. Based on the information in the case, the Board found it proven that C was not the actual owner of a 1/3 share of the property. In its decision, the Board particularly relied on the correspondence from 2011 with A and B’s bank concerning the financing of the purchase. The Board also emphasized that A, B, and C had consistently acted as though only A and B were the real owners. It was noted that C had not lived in the property or otherwise contributed to its maintenance. The Board further highlighted that C had not received interest deductions for her part of the mortgage liability.
On this basis, the Tax Appeals Board confirmed that C would not be subject to capital gains taxation when her ownership of the property ceased. This was conditional on the transfer of C’s ownership share to A and B being made without consideration.
Bachmann/Partners Law Firm assists with all tax and duty-related matters.
Contact can be directed to Christian Bachmann at tel. 30 30 45 21 / chb@bachmann-partners.dk or Peter Hansen at tel. 40 32 35 35 / pha@bachmann-partners.dk.
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