[Exclusive] Even Single-Homeowners Who Have Rented Out Property Face Capital Gains Tax... Acquisition Tax Reduction Up to 900 Million KRW for First-Time Buyers

Democratic Party Lawmaker Park Hong-geun Proposes Tax Law Amendment Bill

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Kim Hyunjung] A plan is being promoted to disallow capital gains tax exemption benefits for single-home owners who have met the actual residence requirement if they have ever rented out their house after acquisition. The acquisition tax will be adjusted by introducing new price brackets for acquisition value under 300 million KRW and over 1.2 billion KRW, adjusting the tax rates both upward and downward. Additionally, the comprehensive real estate holding tax burden will be strengthened for multi-home owners and reduced for first-time homebuyers.

According to the National Assembly on the 9th, Park Hong-geun, a member of the Democratic Party of Korea, will propose amendments to the Comprehensive Real Estate Holding Tax Act, Income Tax Act, Local Tax Act, and Local Tax Special Cases Act, collectively known as the 'Real Estate Reform Four Acts.'

First, the capital gains tax exemption condition for single-home owners will add the clause 'never rented out or used part of the property as a business site after acquisition.' The deduction rates for holding period and residence period, which were differentiated in the December 16th measures last year, will be restructured to reduce the holding period deduction and increase the residence period deduction. Under the current Income Tax Act, single-home owners who hold a house for more than two years, and who have resided in it for more than two years in regulated areas, are exempt from capital gains tax. However, the proposed amendment disallows capital gains tax exemption benefits for houses that have been rented out regardless of whether they are in regulated areas.

Regarding the comprehensive real estate holding tax, the tax rates applied to multi-home owners will be increased by 1.5 times across taxable value brackets compared to the current rates. New taxable value brackets will be introduced to impose progressive tax rates on owners of four or more homes or three or more homes in regulated areas. For single-home owners, deductions based on actual residence period will be promoted as follows: 20% for 2 to under 5 years, 40% for 5 to 10 years, 60% for 10 to 15 years, 80% for 15 to 20 years, and 100% for over 20 years.

[Image source=Yonhap News]

The acquisition tax levied based on acquisition value will also be revised by amending the Local Tax Act and Local Tax Special Cases Act. New brackets for housing acquisition values under 300 million KRW and over 1.2 billion KRW will be introduced to ease acquisition tax burdens on low-priced homes and strengthen them on high-priced homes. Currently, acquisition tax rates are 1% for up to 600 million KRW, 2% for 600 million to 900 million KRW, and 3% for over 900 million KRW. The proposed rates will lower the rate to 0.8% for homes under 300 million KRW and raise it to 4% for homes over 1.2 billion KRW.

Additionally, a new heavy taxation system will be introduced where households owning two or more homes will be subject to an additional 20% surtax on top of the 4% acquisition tax when purchasing additional homes. At the same time, a plan to reduce acquisition tax for first-time homebuyers regardless of income is also under consideration, with reductions of 75% for homes under 300 million KRW, 50% for 300 million to 600 million KRW, and 25% for 600 million to 900 million KRW.

Representative Park Hong-geun explained, "Real estate policy must be comprehensive and effective, carefully considering the stance of many citizens who approach it not only as a housing measure but also as an asset management (investment) issue. The core is to prioritize policies that attract the abundant liquidity in the market into productive investments, while easing the burden on actual residents to block speculative demand, strengthening progressive taxation on multi-home owners, and sufficiently supplying homes to genuine demanders such as the homeless."