Mark-to-Market vs Realisation: Danish Share Tax Over a Lifetime
One portfolio, one pre-tax return, three tax treatments. A mark-to-market wrapper settles up every year on gains you have not sold. Free funds are taxed only when you realise — so selling every year and holding for decades give very different answers, even though the underlying return is identical.
What the three lines assume
- Mark-to-market — the whole annual return is taxed each year at the rate above, paid out of the account, and nothing further is owed when you close it. That matches a share savings account. A pension account taxed at 15.3% also settles annually, but the withdrawal is taxed as personal income later — against contributions that went in untaxed, which this chart does not model.
- Free funds, sold every year — the position is sold and bought back each year, so the entire return becomes share income annually. That burns the low bracket every year, which is the one thing this strategy has going for it.
- Free funds, sold at the end — dividends are still taxed the year they are paid, and reinvested net. The price gain compounds untaxed and is settled in one lump in the final year, where almost all of it clears the threshold and meets the high rate.
The gap between the two free-funds lines is mostly a bracket story, not a deferral story. Selling a slice every year keeps the gain inside the low bracket; selling everything in one year does not. Which of the two wins therefore depends on the size of the position relative to the threshold — raise the starting amount and deferral pulls ahead, lower it and annual realisation catches up. Selling a large position over several years rather than in one go recovers much of that difference.
Losses carry forward against later share income. Returns are assumed constant, which flatters the annual-realisation line: a real path with down years leaves unused losses stranded for longer. Figures are before inflation and before any fees.
This is a model, not tax advice.