When moving between the UK and Denmark, it is important to be aware of the differences that each jurisdiction imposes on areas of personal taxation. Failing to comply with the relevant procedures and local tax legislation could leave individuals with a series of penalties.
The table below highlights a list of arguably the most important areas of personal taxation that individuals should be aware of when moving between the UK and Denmark. Whilst both countries tax residents on their worldwide income, this is where similarities cease as from here on, the UK and Danish tax systems function differently in almost every way.
UK Tax System vs Danish Tax System:
|UK Tax System||Danish Tax System|
|Tax Year for individuals||6 April to 5 April||1 January to 31 December|
|Who is required to file a Tax Return||In the UK, most individuals who are employed will pay tax on their income through payroll and are not required to file a Tax Return.
Tax Returns are required where:
In Denmark, most individuals who are employed and pay tax on their income through payroll are not required to file.
|Payroll System||In the UK, HMRC operates a Pay As You Earn (PAYE) system where tax is collected by the employer through every payslip. The employer then remits the tax withheld to the tax office (HMRC).||In Denmark, if you are an employee, your tax is collected through every payslip and sent to the tax authorities. If you are not an employee, taxes are paid through monthly instalments by the individual.|
|Tax Free Allowance||UK residents (and in some instances non-residents) receive a tax-free personal allowance each year. In 2022-23, the tax-free personal allowance is £12,750. In certain circumstances this can be reduced or increased.||The tax-free personal allowance in Denmark is DKK 46,600 for a full year.|
|Income Tax||The UK operates progressive rates of income tax which include:
||Denmark operates progressive rates of tax on personal income. The rates for 2022 are as follows:
Local tax rates:
In Denmark there is however a tax ceiling, which is the maximum tax rate applicable to personal income. This ceiling is designed to ensure that the total income tax does not exceed 52.07% for personal income. Church tax and labour market contributions are not included in this tax ceiling.
*Applicable on gross salary before tax
|Capital Gains Tax||
In the UK there is a Capital Gains Tax allowance of £12,300 per year (2022-23). After this your tax rate will depend on whether you’re a ‘Basic rate’ tax payer or ‘Higher rate’ tax payer:
Basic Rate: 18% on residential property and 10% other chargeable assets
Higher Rate: 28% on residential property and 20% other chargeable assets
|In Denmark, net positive capital gains income is taxed at 37% up to DKK 47,400 (DKK 94,800 for married couples) and 42% thereafter.|
|Inheritance Tax||In the UK, the standard Inheritance Tax threshold is £325,000 (which can increase to £500,000 where the home is passed to children of the deceased). Where an estate is valued over £325,000 there is a 40% Inheritance Tax rate.||In Denmark, there is no Inheritance Tax on the first DKK 312,500 (2022). The inheritance tax for deceased´s children and descendants, stepchildren and their descendants, parents or cohabitants during the last two years of one´s life is 15%, for others the inheritance Tax is 25%.|
|Tax Return Deadline||31 January following the end of the tax year (31 October if filing a paper return)||1 May following the end of the tax year. If you have foreign income or are self-employed it is 1 July.|
|Tax Payment Deadline||31 January following the end of the tax year. This is the same as the tax return deadline.||31 December in the tax year if you want to avoid interest/surcharges. If you pay after 31 December but before the deadline 1 July 2022, you will avoid the surcharges and only pay the day-to-day interest of 1.7% from the 1 January till the payment date.|
|Assessable on Worldwide Income||UK residents, for tax purposes are taxed on their worldwide income*.||Danish residents, for tax purposes are taxed on their worldwide income.|
|National Insurance/ ATP||In the UK, both the employee and employer are required to pay national insurance contributions each month. The rates vary from 0% to 13.8%. National Insurance is also due on self-employed income.||In Denmark, both the employee and the employer are required to pay labour market supplementary pension (ATP).
The employee part is DKK 94.65 per month and the employer part is DKK 189.30
*Assessable on worldwide income (UK) – Individuals resident of the UK with non-domicile status can opt to claim remittance basis and not be taxed on their overseas income as long as it is not remitted to the UK.
The UK and Danish Tax Systems: An Overall Comparison
Determining which country has the more competitive tax system is relatively straightforward.
Whether your income is subject to income tax or capital gains tax, it is evident from the table above, that the UK offers greater tax-free allowances and lower rates of tax. For example, the UK offers a capital gain allowance of £12,300 with a top rate of tax at 28% (residential property), whereas Denmark has no allowance and a 14% higher tax rate standing at 42%.
As tax systems in the UK and Denmark are extremely different, it requires in-depth analysis to understand how each system operates and the implications which might then present for an individual on a case-by-case basis.
If you require any advice or assistance with UK or Danish personal tax, we are here to help. Simply send us an email at the address below or fill in our contact form to arrange a free initial consultation.
Sheltons Accountants (Copenhagen)