[Q&A] Hong Nam-ki: "We will review countermeasures against gift transfers to avoid capital gains tax"

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki is greeting after announcing a comprehensive real estate plan including strengthening the comprehensive real estate holding tax for multi-homeowners at the Government Seoul Office in Jongno-gu, Seoul on the 10th. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Jang Sehee] Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, said regarding the issue of gifts to avoid capital gains tax increases, "The government is currently separately reviewing the potential problems that may arise from diverting to gifts to avoid capital gains tax."

Deputy Prime Minister Hong and Minister of Land, Infrastructure and Transport Kim Hyun-mi held a Q&A session with reporters immediately after the Emergency Economic Central Countermeasures Headquarters meeting held at the Government Seoul Office on Sejong-daero, Seoul, on the 10th.

Regarding the increased tax burden due to the rise in comprehensive real estate holding tax (종부세, Jongbu-se), Hong said, "Since the comprehensive real estate holding tax has gone up, I cannot deny that more taxes will be collected."

The following is a Q&A with them.

- The capital gains tax was also significantly raised simultaneously with the increase in the comprehensive real estate holding tax rate. There are criticisms that the policies conflict.

▲Hong=Of course, there can be such criticisms about raising both the holding tax called comprehensive real estate holding tax and the transaction tax called capital gains tax together. From the government's perspective, while raising the comprehensive real estate holding tax rate this time, it was unavoidable to also raise the capital gains tax to fundamentally block speculative demand. However, the government also considered the side effects of housing supply shortage caused by the capital gains tax increase. Therefore, a grace period of about one year was set this time. The application of capital gains tax will apply to houses sold from June 1 next year. I hope the market will interpret this as a sign to sell houses by June 1 next year, considering the capital gains tax burden.

- How will the tax burden change due to the increase in the comprehensive real estate holding tax rate?

▲Hong=There are various cases, so I cannot explain all. However, as an example for a multi-homeowner with a market value of 3 billion KRW, the comprehensive real estate holding tax will be about 38 million KRW, and for a market value of 5 billion KRW, it will increase to over 100 million KRW, which is slightly more than double compared to the previous year.

- If the difference between gift tax and capital gains tax disappears, cases may arise where gifts occur while giving up gains.

▲Hong=There have been such criticisms and inspections within the government as well. Although it was not announced today, the government is currently separately reviewing the potential problems that may arise from gifts. We will inform you additionally once the review is completed.

- Regarding the urban high-density development cited as a supply expansion measure, does it include floor area ratio relaxation? Is the deregulation of reconstruction considered?

▲Kim=Supply measures cannot be done by central government ministries alone and much of it can be arranged through consultations with local governments. Issues such as floor area ratio and zoning improvements will be arranged through consultations with local governments. Deregulation of reconstruction is not currently being considered.

- The ruling party is actively promoting the three lease laws. It is expected that the lease market will be confused if the three lease laws are introduced. What is the government's response plan?

▲Kim=Before the amendment of the three lease laws, there are concerns that rents may be raised in advance in the market. It is very important to manage so that tenants do not suffer and that rent prices do not surge when the system is introduced. When the Commercial Building Lease Protection Act was amended in 2018, the right to request contract renewal was applied to both existing and renewed contracts. If such measures are reflected this time as well, I think it will help reduce the burden on current tenants. Regarding the urban high-density development cited as a supply expansion measure, does it include floor area ratio relaxation? Is the deregulation of reconstruction considered?