Korea keeps tax deduction for nonresident single-home owners after backlash

Korea will retain most elements of the tax code revision proposed last month but scrap a plan to lower the existing basic deduction for single-home owners who do not live in their homes following controversy, the Ministry of Finance and Economy said Tuesday.

The Finance Ministry said the revision package, which focuses largely on imposing heavier tax burdens on owners of high-end homes, was finalized at a Cabinet meeting earlier in the day.

The government proposed last month lowering the basic deduction under the comprehensive real estate holding tax for single-home owners who do not reside in their homes from the current 1.2 billion won ($873,000) to 900 million won, but decided to retain the deduction at its current level.

The government will nevertheless raise the basic deduction from the current 1.2 billion won to 1.4 billion won in assessed value for single-home owners who live in their homes.

The government earlier emphasized the importance of owner occupancy, arguing that homes rented out instead of occupied by their owners could fuel speculative trading in the housing market.

Critics, however, argued that the proposed reduction could impose an excessive tax burden, given the prevalence of the jeonse (lump-sum deposit) lease system in the country.

Under the jeonse system, tenants provide landlords with a large lump-sum deposit, which is returned in full at the end of a lease typically lasting at least two years.

The decades-old system allows buyers to purchase homes using only the "gap" between the purchase price and the jeonse deposit. Such purchases are especially attractive during housing market booms, as landlords can find new tenants to repay deposits to outgoing tenants while home prices continue to rise.

Yonhap