Real Estate and Usus Fructus

Usus Fructus, Niessbrauch, Donation-Partage, Nuda Proprietas… This concept goes by many names, but the idea is the same. Have you been transferred ownership of a property abroad but lack rights to it? Then read on.

Usus Fructus grants you the right to use an asset, such as real estate, owned by someone else. It is common for parents to transfer properties to their children under Usus Fructus rules. This means the “bare” ownership is transferred to the children, while income and expenses related to the property are handled by the parents. The transferor thus retains the right to use the asset, including the property, and enjoys the proceeds while also bearing income and expenses associated with the asset.

This arrangement may seem relatively simple and painless. Often, there are many tax advantages abroad, but it can be disadvantageous if you live in Denmark or move to Denmark. Therefore, you should be aware of the tax-related consequences of such a transfer.

The usufructuary, often the parents, has the right to inhabit and use the property and to exploit it. The holder of the bare ownership, typically the children, has the right to legally dispose of the property. In practice, it’ is common that when the parents pass away, the full ownership and usage rights of the property pass to the children, who hold the bare ownership.

Gift

If the parents wish to transfer the property without payment to their child or children, it is essential to assess whether it is considered a gift. You should be aware that the transfer may be deemed a “gift,” which can trigger gift taxation. The gift tax will be based on the property’s value without considering the usage rights.

Example

A’s mother, residing in France, wants to transfer a property to A under the rules of Donation-Partage. The property’s value is DKK 2 million. A’s mother can freely give gifts up to DKK 76,900 (2025 level). That means A does not have to pay gift tax on the first DKK 76,900. The remaining DKK 1,923,100 are subject to a 15% gift tax. Thus, A would have to pay DKK 288,465 in gift tax.

If you want to know more about property valuations in family transfers, click here (danish).

If you want to know more about property values in estates, click here.

Fixed Market Rent

If your parents rent out or reside in the property, you will be taxed based on the market rent. This taxation applies regardless of whether you receive actual rental income. If you do not charge market rent, the Danish Tax Agency has the authority to fix a market rent. The Tax Agency can estimate the market rent, considering the property’s location, age, size, and reported condition. They will also consider the current rent levels for vacant residential rentals in the area and any assessments by real estate agents. Therefore, it may be beneficial to obtain a real estate agent’s assessment if you do not receive rental income or if the rental income is below market rent. If net, you risk the Tax Agency making an estimate higher than the actual market rent.

If the property is rented out, the Tax Agency assesses whether the rent charged is significantly less than the market rent. Any difference will be taxable for you. Thus, it is not advantageous for you to be the real owner of the property without receiving any rental income – or receiving rental income significantly below market rent.

Capital Gains on Property

The general rule is that you must pay capital gains tax in Denmark if you sell the property since you are the actual owner. However, there are two exceptions:

• Primary Residence Rule: If you have lived in the property during your ownership, you can sell the property tax-free.
• Vacation Home Rule: If the property is a vacation home, and you have used it for personal purposes, you may be exempt from capital gains tax upon sale.

If you do not fall within either of these two exemptions, you will be liable to pay capital gains tax on real estate in Denmark. Any potential gain is calculated as the difference between the cash value of the disposal price and the acquisition price. The acquisition price is increased by DKK 10,000 for the year of acquisition and for each subsequent calendar year during which you have owned the property – except for the calendar year in which the property is disposed of, unless the disposal takes place in the same year as the acquisition. The gain will be taxed as part of your personal income.