What do the new property assessments mean for you as a homeowner/homebuyer and how are they determined?

The Danish Property Assessment Agency has just sent out the first property assessments, and many homeowners are asking themselves one question: What do the new property assessments mean for me?

The purpose of the new property assessments and the new assessment/property tax system has been to make more accurate and transparent property assessments based on the realized property value in the area where the property is located, which means that the homeowner pays property tax based on the real property value and not on a property value that is outdated and either too high or too low. Unfortunately, this is the case in many of current property assessments.

The legal basis for the new property assessments can be found in Ejendomsvurderingsloven section 15.1.

The assessment is defined as follows:

“In the assessment of a property, the expected cash value of a property under normal market conditions is determined by the property category in question – taking age, size, location, and other characteristics into account.”

Based on the above, the Danish Property Assessment Agency has made a four-step model:

1. The square-meter price for the area is found
2. The square-meter price is adjusted
3. The preliminary property value is calculated
4. The final property value is determined

Step 1

The square-meter price is determined based on 15 realized sales (including the sale of the property in question) in the area within the last six years. The properties should be of the same type and within the same geographical area.

Step 2

The square-meter price is adjusted according to the characteristics of the property. The Danish Property Assessment Agency looks at building materials, property age, location in relation to wooded areas, water, and motorways, etc.

Step 3

The preliminary property value is determined by multiplying the weighted area of the property by the adjusted, square-meter price.

Step 4

The final property value of the property is determined, including any adjustments due to special conditions that apply to the property – such as contamination of the land, noise etc.

Once the property has been through the Danish Property Assessment Agency’s four-step model, you should as a homeowner receive a property assessment that is consistent with the realized property value in your area.

The precautionary principle:

There will always be uncertainty when it comes to a property assessment, because the real property value only can be determined by finding out what price two independent parties can agree upon.

In its property assessments, SKAT has adopted a precautionary principle. This means that the property assessment is reduced by 20%, thus basing the taxation on 80% of the public property assessment.

Example:

The property assessment of a house is, for example, DKK 8 million. In this case, 20% is subtracted from the property assessment, which means that the calculation of the property value tax is based on the remaining DKK 6.4 million.

The idea is that the precautionary principle should benefit the individual homeowner, but it can also become a challenge in relation to a possible complaint about a property assessment. This should be understood in light of the fact that a homeowner’s complaint about a property assessment will not be upheld unless there is documentation proving that the property assessment deviates more than + / – 20%. Therefore, if the property assessment is within + / -20% of the established property value, SKAT considers the property assessment to be correct.

Will the new property assessments have an impact on me as a homeowner / homebuyer?

The majority of the country’s homeowners should expect that the new property assessments will be higher than the current property assessments – especially in and around the big cities.

Most homeowners probably think that property taxes will increase – however, this is not necessarily the case, as the tax rates will be reduced when the new assessment system is in place. Rates for property value taxes are expected to be reduced from 0.92% to 0.55% for the part of the tax base that does not exceed DKK 3,040,000 (progression limit) and from 3% to 1.4% for the remaining part.

Additionally, the progression limit is raised from DKK 3,040,000 to an expected DKK 8,300,000. (DKK 6,640,000 in relation to the precautionary principle). Furthermore, the municipal tax on property is expected to be reduced in 2024.

In other words, homeowners/homebuyers who own or acquire property before the new assessment/property tax system is in place may get a tax reduction or receive a tax refund if the old assessment has been too high.

The idea is that when the new assessment/property tax system is introduced, homeowners/homebuyers will not have to pay more property tax than if the current property assessments had continued.

Property taxes from the current assessment/property tax system are compared with property taxes from the new assessment/property tax system.

If it turns out that the property taxes are higher when the new assessment/property tax system is introduced, the homeowner/homebuyer will get a tax reduction. The reduction will be maintained until the homeowner sells his property.

In accordance with the tax reduction, a property tax freeze has also been introduced. The property value tax freeze is expected in 2024.

Click here to read more about the property tax freeze. 

Properties will continue to be assessed once every two years, so the new property assessments in 2026 will be used as a basis for property taxation.

If the new property assessment is higher than the property assessment that will be applied to the taxation in 2024 and 2025, homeowners will experience an increase in property taxes in 2026.

The tax reduction will remain valid but is only maintained in relation to the amount, which is the result of an increase in property taxes. With the tax freeze, it will be possible for you as a homeowner to freeze these increases already in 2024.

The tax rates for property value tax, property tax, and the progression limit will be finally set by law in 2023 when the new property assessments that form the basis for the 2024 taxation are known.

In addition, there is a readjustment of property tax for the period from 2021 to 2023. The readjustment is due to homeowners paying property tax based on the assessment from 2011 for the years 2013 to 2020, instead of paying property tax based on the 2020 assessment for the years 2021 to 2023. Therefore, those property owners who were taxed at the full property value in 2020 and simultaneously received a higher property assessment for 2020 than in 2011 can expect a readjustment of property tax for the years 2021 to 2023. In this case, they have been taxed at too low a value. The readjustment can be deferred and can amount to a maximum of approximately 28 percent of the amount paid in property tax in 2020. This is due to the so-called “tax cap”.

If you are interested in learning more about the preliminary porperty assessment for 2022, click here.

Conclusion:

Even if the new property assessment of your home is higher than the current assessment, as a homeowner you can still sleep soundly at night. This should be understood in light of the fact that increases in property taxes at the introduction of the new assessment/property tax system is continued with a tax reduction, and that possible increases in property taxes due to a higher property assessment and readjustments in the future can be frozen until the day you choose to sell your property.

Hopefully, the new assessment/property tax system provides property assessments that reflect the real market price of the property (+ / – 20%), meaning that the individual homeowner is taxed according to the actual value of the property and not according to a property value that is outdated and either too high or too low.