One line about the tenant's deposit reshapes the tax — how the same ₩600M apartment became ₩101.85M or ₩67.05M

You pass a ₩600M apartment to your child. Gift it outright and the gift tax is ₩101.85M. But the home has a tenant whose deposit is ₩300M. Gift it on condition that the child takes over that deposit, and the tax splits in two: the child pays ₩38.8M of gift tax, the parent pays ₩28.25M of capital gains tax. That is ₩67.05M in total, ₩34.8M less. Same home, same child, yet one line about the tenant's deposit reshaped the tax. It is called a burdened gift. But the method comes with a condition the tax office watches, and for some homes the tax goes up instead.

First step: two laws look at the same transaction differently. Article 47 of the Inheritance and Gift Tax Act: the taxable gift value is the value of the gifted property minus the debt secured on it that the recipient assumes. If the child takes over the lease deposit or the mortgage, that much is not a gift. Then what is it? Article 88 of the Income Tax Act answers: in a burdened gift, the portion corresponding to the debt the recipient bears is deemed a transfer. If the child assumes ₩300M of debt, the parent has in effect sold ₩300M worth of the home to the child, and a sale with a gain draws capital gains tax.

Second step: the calculation. Conditions: market value ₩600M, a home the parent bought 10 years ago for ₩300M, a ₩300M lease deposit, a gift to an adult child, standard capital gains rates assumed. First the plain gift. ₩600M minus the adult child's ₩50M deduction leaves a tax base of ₩550M; through the progressive rates and the filing credit, the gift tax is ₩101.85M.

Now the burdened gift. The gift portion is ₩300M. Minus ₩50M leaves ₩250M, which sits in a lower bracket: gift tax ₩38.8M. The sale portion is ₩300M. Half of the ₩300M purchase price, ₩150M, is this portion's cost basis; the ₩150M gain, less the 20% long-term holding deduction for 10 years, is taxed at ₩28.25M. The total is ₩67.05M, ₩34.8M less than the plain gift. Why? Gift tax is progressive: ₩600M in one block climbs into the high brackets, while ₩300M stops in a lower one. In exchange a new capital gains tax appears, and the method only pays when the sum of the two is smaller than the original. For the same home, if the parent had bought for ₩500M and held 3 years, the smaller gain brings the total down to ₩44.76M. Cost basis and holding period are the two handles of this arithmetic. Skip the comparison and you are making a choice worth more than ₩30M on instinct.

Third step: the tax office's condition. Article 47(3) of the Inheritance and Gift Tax Act has a special sentence: in a burdened gift between spouses or between lineal relatives, the recipient is presumed not to have assumed the debt even if they did. Within a family, the claim to have taken on debt is not believed by default; the exception is debt that is objectively recognized. So the real test is proof, not arithmetic. First, the debt must be real, backed by objective documents such as a registered lease with a fixed-date stamp or a bank's loan records. Debt improvised right before the gift draws suspicion. Second, the child must actually take it on: a loan must be transferred into the child's name with the child paying interest and principal, and a lease deposit must be returned by the child at maturity. Third, the child must be able to pay. The moment the parent pays instead, that amount becomes a new gift and a target for a source-of-funds investigation.

Fourth step: there is one more tax, the acquisition tax the child pays on receiving the home. The Local Tax Act sets 3.5% on gratuitous acquisitions such as gifts and applies a heavy surcharge to gifted homes above a set value in adjustment areas, except when the home of a one-home household goes to a spouse or lineal relative. The debt portion of a burdened gift is treated as an acquisition for value at the sale rate, but here too there is a family condition: between spouses and lineal relatives it counts as for value only if the child is proven to have actually paid. The proof from step three works the same way in acquisition tax. Now the homes where this backfires. A burdened gift creates a capital gains tax, so the larger that tax, the worse the method: a home bought cheaply long ago with a large gain, a multi-home owner facing the surcharge, or a home the parent bought recently, with no long-term holding deduction or the short-term rate (60% to 70% for a home held under 2 years). The other way round, if the parent's home qualifies for the one-household one-home exemption, the debt portion's transfer is exempt too (up to ₩1.2B), no capital gains tax arises, and a burdened gift can come out even better. It is a trade of lower gift tax for new capital gains tax, and the exchange rate differs home by home.

The decision table. A burdened gift comes out ahead when three conditions overlap. First, debt is a large share of the home's value, so the gift portion falls into a low bracket. Second, the parent's purchase price is high so the gain is small, and the holding is 3 years or more so the long-term holding deduction applies. Third, the child has the income to actually carry the debt. If any one is badly off, recalculate. And the rules from the gift episode still apply: gifts from the same person within 10 years are aggregated, the gift tax return is due within 3 months from the end of the month of the gift, and the parent files the capital gains return separately. Finally, order: calculate before the contract is signed. If the numbers come out unfavorable after the gift is registered, it is hard to undo. Returning the property by agreement within the gift tax filing deadline (3 months from the end of the month of the gift) treats the gift as never made; return it later and the original gift tax stays, and more than 3 months past the deadline the return itself is taxed as a gift.

Two things to do now. First, if you plan to pass a home to your child, write down four figures (market value, the parent's purchase price and holding period, the debt amount, the child's income) and compare the total tax under both methods. Second, answer first whether the debt assumption is actually possible: can the child repay that debt? If the answer is no, the calculation is meaningless. Exemptions and surcharges in capital gains tax and the area and value thresholds for the acquisition tax surcharge differ case by case, so design the actual gift with a tax adviser. One line about the tenant's deposit reshapes the tax, but what makes the tax office believe that line is paperwork and the child's actual repayment.