Parental purchase: tax, tenancy and pitfalls

Parental purchase (forældrekøb) is one of the most common ways parents help their adult children with student housing in Denmark. And with good reason: the combination of possible tax advantages and the ability to build wealth in real property makes the arrangement attractive, but it is also surrounded by rules that are crucial to know before you sign anything.

This guide gives you an overview of what a parental purchase involves, which tax rules apply, what the law requires of your tenancy agreement, and which pitfalls can prove costly.

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What is a parental purchase?

A parental purchase is when a parent (or both parents) buys a flat with a view to letting it to their child, typically while the child is studying. Ownership is formally with the parents, but the child lives in and pays rent for the flat.

The arrangement is popular for several reasons:

• The child gets housing in a city with a tight housing market (primarily Copenhagen, Aarhus, Odense)
• The parents build wealth in real property rather than paying rent to an outside landlord
• Tax circumstances can in some cases make the letting partly self-financing

There is nothing unlawful about a parental purchase, on the contrary it is fully recognised by the tax authorities. But precisely because it has tax consequences, it is important to observe all the rules exactly.

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Advantages and disadvantages of a parental purchase

Advantages

1. Building wealth rather than lost rent Rather than paying market rent to an outside landlord, part of the child's rent payments go towards reducing debt on a property that can rise in value over time.

2. Possible tax advantages Depending on the chosen tax scheme (typically the business tax scheme), interest and operating costs can be deducted, reducing the effective taxation of the rental income.

3. Security for the child The child lives stably and does not have to worry about termination from a private landlord in a tight housing market.

4. The possibility of a later transfer to the child When the child has finished their education, the flat can be sold to the child, possibly at a favourable price within the tax authorities' accepted range (see the section on sale below).

Disadvantages and risks

1. Tying up capital A parental purchase requires a down payment and ties up capital in real property.

2. Landlord obligations The parents are formally landlords and have duties under the Tenancy Act: maintenance responsibility, rules for rent increases, requirements for the move-out statement, etc.

3. Market risk Real property can fall in value. A parental purchase is an investment with real risk, especially in periods of rising interest rates.

4. The tax authorities set requirements The rent must be set at the market rent. If the child underpays, the difference can be regarded as a taxable gift.

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Tax rules for a parental purchase

A parental purchase is taxed as the letting of real property. You can as a rule choose between three methods of calculating the result:

1. The business tax scheme (often the most advantageous)

The business tax scheme (virksomhedsordningen) is today typically the most advantageous scheme for a parental purchase. Among other things, it gives full deduction for interest on the property's loan in the business income (instead of as capital income), which can have great tax value on large loans. The scheme requires separate accounts (deposit account, order of withdrawals, interest correction, etc.), and assistance from an accountant is recommended.

2. The capital-return scheme

The capital-return scheme (kapitalafkastordningen) was previously popular for parental purchases, but from 2021 onwards the purchase price of a parental-purchase property can no longer be included in the basis on which the capital return is calculated. This means that the classic advantage (a calculated capital return on the property's value as negative capital income) has in practice lapsed for a pure parental purchase. The scheme can still matter if you already run another business. The capital-return rate is set by the tax authorities each year (it was, for example, 2% in 2025), check the current rate.

3. Personal income (the accounting method)

If you choose neither of the two schemes, ordinary accounts are drawn up: rental income minus actual operating costs (and any interest is deducted as capital income). The surplus is taxed as personal income. This method is often less advantageous on larger loans.

Choose the scheme with advice: Which scheme is most advantageous depends on your specific situation, especially the size of the loan and the interest costs. Contact an accountant before you choose.

The tax authorities and market rent

Important: The rent must correspond to the market level in the area in question. If the child pays too little, the difference can be regarded as a taxable gift. Always set the rent at a documented market level.

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Tenancy agreement in a parental purchase: requirements and pitfalls

Many parents think that because it is a family relationship, an oral agreement is sufficient. It is not, neither legally nor for tax.

The Tenancy Act applies

A parental purchase is legally an ordinary tenancy governed by the Tenancy Act. This means, among other things:

• The child has tenant rights and cannot simply be evicted
• The rent cannot be increased arbitrarily, only under the rules of the Tenancy Act
• Moving out requires written notice with the agreed notice period

Requirements for the tenancy agreement

Use the authorised standard tenancy agreement (typeformular A) or a legally correct digital tenancy agreement. The agreement must, among other things, contain:

• The parties' names and addresses (parent as landlord, child as tenant)
• The flat's address and size
• The rent amount (market-based)
• Deposit (a maximum of 3 months' rent)
• Move-in date and termination terms
• Information on the allocation of maintenance

LegalDock's tenancy-agreement template is built to the requirements of the Tenancy Act and guides you through all the mandatory fields. Note that a landlord with only one property is not covered by the Tenancy Act's mandatory inspection-and-report regime, but a written contract and a move-in report are still strongly recommended.

Market rent: how to document it

To avoid problems with the tax authorities, the rent should be documented. Practical methods:

1. Look at comparable flats on housing portals
2. Obtain a rent-setting assessment from an estate agent
3. Refer to the rent tribunal's decisions for the area

The rent should be reviewed at intervals to keep up with the market.

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Financing a parental purchase

Mortgage, bank loan and down payment

A parental-purchase flat is a residential property, so you can typically finance it like an ordinary owner-occupied home:

• Mortgage loan: up to 80% of the purchase price
• Bank loan: typically up to about 15%
• Equity (down payment): as a rule at least 5%

Note, however, that some banks, for credit-policy reasons, require a larger down payment for a parental purchase than for a home you will live in yourself. Check the specific requirement with your bank and mortgage institution.

Interest and term

Consider the form of financing carefully:

• Fixed interest gives predictability, relevant if the budget is tight
• Variable interest can be cheaper, but involves risk on rising rates
• Interest-only can improve liquidity, but increases the total debt over time

Alternative: a parental loan

As an alternative to buying the flat, parents can lend the child money to buy themselves. A parental loan can be provided as an interest-free or low-interest on-demand loan under the applicable rules. The distinction is important: with a parental loan it is the child, not the parents, who owns and possibly lives in the home, and the tax consequences are entirely different (the child can, for example, be covered by the owner-occupier rule on their own sale).

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When should the flat be sold?

The timing of the sale of a parental-purchase flat has major tax consequences.

Sale to the child (family transfer)

For a family transfer, a favourable valuation range applies under the valuation circular:

• If you have received a new property valuation (the 2020 valuation), the property can be transferred within ±20% of that valuation (the 20% rule)
• If you still have only the old valuation, ±15% of that still applies (the 15% rule)

The rule can, however, be set aside if there are special circumstances (for example a recent transaction price or mortgaging that shows a markedly higher market value). Always check the current valuation and get advice before setting the price.

The parents' gain on the sale is taxed as property gain (capital income). Note that the owner-occupier rule (tax-free sale of one's own home) does not apply to the parents, as they have not lived in the flat themselves. The child, by contrast, can often sell tax-free under the owner-occupier rule, if the child has lived in the flat as owner.

Sale to a third party

If you choose to sell to an outsider, the parents' gain is taxed as property gain. Any loss can be offset against gains on other real property.

Transfer as a gift / advance on inheritance

If the flat is sold to the child below the valuation range, the difference up to the market value is a gift. Gifts between parents and children are exempt from duty up to the annual gift-duty allowance (in 2026: DKK 80,600 per child per giver); on amounts above that, 15% gift duty is paid. Part of the transfer can also be settled with an on-demand loan that can be reduced with annual duty-free gifts. On inheritance after the parents' death, the estate-duty rules with a higher allowance apply instead.

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How to get started, step by step

Step 1: Do the calculations

Before you seek financing, you should make a realistic breakdown:

• The expected market rent for the type of flat you are considering
• Estimated operating costs (owners'-association fee, insurance, land tax, maintenance)
• Financing costs (interest and repayments)
• The tax effect under the chosen scheme

Many banks and housing economists offer a free preliminary calculation for potential parental buyers.

Step 2: Choose the right flat

Focus on the location relative to the child's place of study, the property's condition (avoid large maintenance backlogs in the owners' association) and the flat's resale value.

Step 3: Financing in place

Contact at least two mortgage institutions and your bank for offers. Have the capital requirement ready, and ask specifically about the bank's down-payment requirement for a parental purchase.

Step 4: Signing the purchase agreement with reservations

Always include a financing reservation and consider a lawyer reservation. Thoroughly review the owners' association's finances and any planned renovations.

Step 5: Draw up the tenancy agreement

Before the child moves in, draw up a written tenancy agreement to the requirements of the Tenancy Act. Set the rent at a documented market level, and make a move-in report.

Step 6: Choose the tax scheme

Contact an accountant about which scheme (business tax scheme, capital-return scheme or personal income) is most advantageous in your specific situation. Make the choice before the first statement.

Step 7: Ongoing administration

• Pay the rent by bank transfer (never cash), documentation is crucial
• Keep all receipts for operating costs
• Review the rent regularly against the market

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Related articles

• Tenancy agreement: complete guide for landlords
• Buying a home: legal documents and checklist
• Letting a room: rules you should know

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Frequently asked questions about parental purchase

Can I still use the capital-return scheme for a parental purchase?

You can choose the scheme, but from 2021 the parental-purchase property's purchase price cannot be included in the capital-return basis. The classic advantage has therefore in practice lapsed for a pure parental purchase, and most people choose the business tax scheme instead. Have it assessed by an accountant.

Must the child pay market rent in a parental purchase?

Yes. The rent must correspond to the market level for comparable flats in the area. If the child pays below market rent, the difference can be regarded as a taxable gift. Document the market rent level at the time of the contract and review it regularly.

Can the parents sell the parental-purchase flat tax-free?

No. The owner-occupier rule does not apply to the parents, as they have not lived in the property themselves. The parents' gain is taxable property gain. The child, by contrast, can often sell tax-free under the owner-occupier rule, if the child has lived in the flat as owner.

What is the best way to transfer the flat to the child?

The flat can be transferred within the valuation circular's range (±20% of the new valuation, otherwise ±15%), unless there are special circumstances. Which solution is best depends on the property's value and the family's overall planning. Consult an accountant or lawyer.

What happens if the child stops studying and wants to stay?

The tenancy continues on the existing terms. As a landlord you can terminate the tenancy with the notice that follows from the Tenancy Act and the agreement. Remember that the child, as a tenant, has the same rights as any other tenant.

Does a parental purchase require both parents to be involved?

No. A parental purchase can be made by one or both parents. What matters is who is legally registered as owner on the deed. Both parents' income can, however, be included in the credit assessment on a joint loan.

What is the difference between a parental purchase and a parental loan?

In a parental purchase, the parents own the flat and the child is a tenant. The parents have the landlord obligations and the associated tax rules. In a parental loan, the parents lend the child money to buy a home themselves, the child is the owner, and the parents are lenders. The tax and legal consequences are fundamentally different.

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Conclusion

A parental purchase can be a sensible investment and a helping hand for your child, but it requires you to understand the rules thoroughly. The most important points are:

1. The rent must correspond to the market level, this is a requirement, not optional
2. A tenancy agreement is strongly recommended and must follow the Tenancy Act
3. The business tax scheme is today for most people the most advantageous tax treatment (the capital-return scheme's classic advantage has lapsed since 2021)
4. Financing can be as a residential property (up to 80% mortgage), but the banks' equity requirements can be higher for a parental purchase
5. Sale is taxable for the parents, understand the consequences before you decide on an exit strategy

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The content of this article is for guidance only and does not constitute legal or tax advice. Consult an accountant or lawyer for advice on your specific situation, including the choice of tax scheme and the tax consequences of a sale.