Government Considers Expanding Residency Exceptions for Non-Resident Homeowners

The government is considering expanding the exceptions for recognizing 'actual residence' to alleviate the capital gains tax burden on non-resident homeowners. Proposals include recognizing unavoidable non-residency due to childcare and family care, but concerns have been raised that increasing exceptions may complicate the administrative burden of verifying actual residency.

According to relevant departments on the 26th, the government and the ruling Democratic Party are reviewing measures to expand the recognition of residency periods for non-resident homeowners in response to growing backlash against the tax burden during the legislative notice period for the 2026 tax reform plan.

The original government proposal allowed for a maximum of three years of residency recognition if a homeowner moved due to unavoidable reasons such as schooling, work, illness, overseas residence, or caring for parents after living in the home for a certain period.

However, during the legislative notice period from April 4 to 20, over 10,000 public opinions were submitted to the Ministry of Legislation regarding the real estate tax reform. A significant portion of these opinions opposed the differentiated taxation on non-resident homeowners and the restructuring of long-term holding special deductions centered on actual residence.

In response, the government and ruling party are considering adding childcare and family care to the list of exceptions. They are also discussing the relaxation of the requirement for a minimum of one year of prior residency and the regional requirements for moving to another city or county. There are calls to reflect various non-residency reasons that may arise in reality, such as remodeling, long-term assignments, and education for children with disabilities.

During a high-level government ruling party meeting on the 23rd, consensus was reached on this direction. Park Sung-jun, the chief spokesperson for the Democratic Party, stated, "There is a consensus within the government and the party regarding the expansion of residency recognition for those who are non-resident due to unavoidable reasons and other diverse opinions raised."

The challenge is that broadening the exceptions may dilute the policy intent of restructuring the tax system around actual residency. Narrowing the recognition criteria could disadvantage homeowners who are temporarily away from their homes, but overly broad criteria could potentially include a significant number of long-term holders as exceptions.

Issues of verification also remain. It needs to be determined how to distinguish between merely changing residency registration and actually relocating one's primary residence, as well as what documentation will be required to confirm non-residency reasons such as childcare, caregiving, or job relocation. As the number of exceptions increases, the administrative burden on tax authorities, as well as the potential for disputes with taxpayers, may also grow.

Future discussions are expected to focus on how to design the recognition period and regional scope. Establishing criteria that protect genuine users while maintaining the principle of taxation based on actual residency will be crucial.

Kim Jeong-sik, an emeritus professor of economics at Yonsei University, noted, "There are elderly individuals who rent out their homes after retirement and live elsewhere, using the rental income as retirement income. If the tax burden on non-residents increases, it could reduce the retirement income for this demographic."

He added, "With significant backlash against the strengthened capital gains tax on high-value properties, simultaneously regulating non-resident homeowners could lead to even greater opposition to the policy. If the goal is to lower the prices of high-value properties, it is necessary to clarify the policy objectives and focus the tax system on that area."