The Risks of Co-Naming Lease Agreements
When it comes to lease agreements, co-naming can seem like a straightforward solution for couples. However, the tax implications, specifically concerning gift tax, are significant. If one party finances a lease but both parties are listed on the contract, there can be unforeseen tax responsibilities.
Why Financial Responsibility Matters
In a situation where a husband pays the entire lease deposit of 750 million KRW but the contract is jointly named with his wife, the wife’s share might be considered a gift. This is because tax laws prioritize the actual source of funds over the contract’s formalities. If the wife does not contribute financially, her share could be subject to gift tax.
Gift Tax Between Spouses
Even within marriages, gift tax applies. Fortunately, there is a tax exemption of up to 600 million KRW over ten years. This means that as long as the transferred amount does not exceed this limit, there is no immediate tax liability. Nonetheless, larger sums or repeated property transfers can lead to cumulative tax issues.
Refunding Lease Deposits and Tax Considerations
Even if the lease deposit is refunded to the husband’s account at the end of the lease, the initial financial arrangement is what matters for tax purposes. The tax office evaluates who actually financed the deposit, and if the co-naming doesn’t reflect this, it could still be seen as a gift.
Insurance and Taxation Benefits
Some may consider co-naming lease agreements to reduce health insurance costs, as this can affect the financial assessment for premiums. However, insurance and tax authorities share data, meaning that any attempt to lower insurance costs through co-naming could backfire if it is deemed a tax evasion tactic.
Potential Legal Implications of Name Lending
If a husband covers the entire lease deposit but lists the wife as a co-owner, it might be perceived as name lending, which is illegal. This can lead to legal disputes or tax investigations, and potentially result in fines for violating real estate ownership transparency regulations.
Avoiding Legal and Tax Pitfalls
To safely co-name a lease, both parties should ideally contribute to the deposit. For instance, if both a husband and wife each pay 375 million KRW, this reflects genuine co-ownership. Alternatively, one can assume full financial responsibility and declare it appropriately to avoid tax issues.
Conclusion: Aligning Ownership with Financial Contributions
While co-naming can offer benefits like potential tax reductions or lower insurance premiums, it’s crucial to align the ownership with actual financial contributions. Consulting with a tax professional before entering a lease agreement is advisable to navigate these complexities and avoid unexpected tax liabilities.