Supreme Court allows early house inheritances

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Supreme Court allows early house inheritances


The Supreme Court yesterday handed down a landmark ruling, making it possible for children to be exempted from hefty inheritance taxes for taking over their parents’ house - on the condition they pay monthly allowances to their folks.

The court confirmed an original verdict in a lawsuit filed by a citizen known by the surname Heo against the tax office of Seongdong District Office that said the office should “nullify the imposition of gift tax” on Heo.

“We have reviewed both the initial ruling and reasons for [the tax office’s] appeal and concluded the original verdict was right,” said the court.

The ruling will allow families to be exempted from the high gift tax when parents surrender their house - often their main asset - to their children, who then support them. This arrangement is also called a “children’s pension,” which refers to the parents receiving living expenses in return for surrendering their house.

The case involved a 49-year-old female insurance planner who was slapped with a 21.66 million won ($20,000) gift tax by her district tax office in 2012, which claimed she did not pay the gift tax after receiving ownership of an apartment in Nowon District, northern Seoul, two years earlier, in which her parents were still living.

Heo refused to pay the tax and asked for an assessment of the case at the Tax Tribunal, claiming the apartment ownership was based on the 1.2 million won monthly expenses she had given her parents for over a decade.

The plaintiff even paid part of the mortgage on her parents’ apartment.

The Tax Tribunal declined to accept her argument, saying Heo’s financial support for her parents was “temporary.” The tribunal instead reduced
the amount of tax to 9.22 million won, which prompted the daughter to file the suit.

The Supreme Court took note of bank records that showed Heo sent the monthly allowance on fixed dates every month even before her parents gave her the house and the total amount of money she gave to her parents, 131.1 million won, was close to the actual market price of the apartment, which was 161 million won.

Kim Sun-il, a spokesman for the Supreme Court, compared the transaction between Heo and her parents to a so-called reverse mortgage. The reverse mortgage allows people aged 65 or older to put up their residences as collateral and receive monthly pensions from financial institutions for the remainder of their lives.

“The ruling has eased the agony of today’s parents in that many of them have been reluctant to transfer their houses to their children before their deaths for fear that the children may abandon them after the inheritance,” said Park Sun-hee, a lawyer who pleaded the case.

BY PARK MIN-JE, SEO JI-EUN [spring@joongang.co.kr]

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