Increase Comprehensive Real Estate Tax for Speculative Multi-Homeowners... Review of Tax Base Bracket Adjustment and Deduction Reduction

(Photo by Yonhap News)

[Asia Economy Reporter Kwangho Lee] The ruling party and the government are considering measures to increase the comprehensive real estate holding tax burden on speculative homeowners, including multi-homeowners.

According to the Ministry of Economy and Finance and the Democratic Party of Korea on the 5th, the government and ruling party are reportedly reviewing a plan to lower the comprehensive real estate tax base brackets along with the announced increase of the highest tax rate to 4.0% on the 17th of last month, thereby increasing the number of people subject to the higher tax rate.

To be subject to the highest comprehensive real estate tax rate of 4%, the amount obtained by multiplying the publicly announced price by the fair market value ratio (90%) must exceed 9.4 billion KRW, which translates to approximately 15 billion KRW in market value. Therefore, adjusting the tax base brackets above a certain amount can increase the actual comprehensive real estate tax burden felt by high-value multi-homeowners.

The government is also reportedly considering significantly reducing the basic deduction amount for multi-homeowners.

One proposal under discussion is to halve the deduction amount for owners of three or more homes. Applying the reduced deduction together with the strengthened tax rates would sharply increase the tax burden. Currently, the comprehensive real estate tax base is calculated by summing the publicly announced prices of owned homes, subtracting a basic deduction of 600 million KRW (900 million KRW for single-home households), and then multiplying by the fair market value ratio (90%, increasing to 95% next year and 100% the year after).

Previously, the government announced the June 17 measures to strengthen corporate real estate taxation, raising the comprehensive real estate tax rate on homes owned by corporations to the highest rate while abolishing the 600 million KRW deduction benefit.

The government plans to pass the comprehensive real estate tax strengthening bill in the July National Assembly session. The current tax rates, ranging from 0.5% to 3.2% including single-homeowners, will increase to 0.6% to 4.0%. The government also plans to push forward an amendment to the Income Tax Act that includes capital gains tax strengthening measures announced in the December 16 plan.

This amendment includes adding a residency period requirement for long-term holding special deductions for single-homeowners who trade homes with actual transaction prices exceeding 900 million KRW from 2021 onward, and raising the capital gains tax rate on homes held for less than one year from 40% to 50%, thereby strengthening capital gains tax for non-primary residence buyers.