Ministry of Economy and Finance: "Low likelihood of choosing gift tax due to high capital gains tax... Considering acquisition tax increase if necessary"

(Photo) [Image source=Yonhap News]

[Sejong=Asia Economy Reporter Joo Sang-don] The government announced on the 13th that it will consider raising the acquisition tax rate at the time of gift transfer. This follows concerns that multi-homeowners might choose gift transfers as a loophole to avoid the tax burden after the capital gains tax rate was raised through the '7·10 Real Estate Measures.'

The Ministry of Economy and Finance believes that the concern over choosing gift transfers as a loophole simply because the capital gains tax rate is high is not significant. Even if the highest capital gains tax rate (proposed revision: 72% for gains over 500 million KRW) is high, gift tax is imposed on the entire housing price, so generally the gift tax burden is greater. For example, in the case of a house valued at 2 billion KRW with a capital gain of 800 million KRW, the gift tax amounts to 640 million KRW, whereas the capital gains tax ranges from 300 million KRW (general area) to 540 million KRW (adjusted target area with three or more houses). Also, capital gains tax is realized by actual sale proceeds, but gift transfer involves asset transfer without income realization, making the practical burden heavier, which is one reason why choosing gift transfer over sale is less likely. However, the Ministry stated, "We are closely monitoring market conditions and reviewing supplementary measures such as raising the acquisition tax rate at the time of gift transfer, and will take additional measures if necessary."

Regarding concerns that the increased tax burden might cause a surge in jeonse prices, the stance is that the possibility is low. The effect of raising the comprehensive real estate tax rate occurs only for some high-priced houses in certain regulated areas, so it is unlikely to lead to an overall rise in jeonse prices. Especially, with about 110,000 apartment units scheduled for move-in in the metropolitan area in the second half of this year, which is 17% more than usual, the overall jeonse market is expected to remain stable.

Additionally, the Ministry emphasized that for single-homeowners who have held their homes long-term, the increase in tax burden is not significant. According to the Ministry, for a 65-year-old single homeowner A who has owned one apartment in Seoul for 10 years, the comprehensive real estate tax increased by 1.26 million KRW from 7.56 million KRW in 2020 to 8.82 million KRW in 2021. For a 58-year-old single homeowner B who has owned the same house for 3 years, the tax rose by 10.48 million KRW from 18.92 million KRW to 29.4 million KRW during the same period. A Ministry official explained, "Houses with a publicly announced price of 3 billion KRW or more account for only 0.01% of all houses as of 2019," adding, "The effect of this comprehensive real estate tax increase on long-term single homeowners for actual use and the elderly is not significant."

On the other hand, the tax burden for multi-homeowners with two or more houses in adjusted target areas increases significantly. For example, if the publicly announced price of apartment A in Seoul rises from 1.5 billion KRW in 2020 to 1.65 billion KRW in 2021, the comprehensive real estate tax increases by 42.06 million KRW from 26.5 million KRW to 68.56 million KRW. For owners of three houses, it jumps by 65.75 million KRW from 41.79 million KRW to 107.54 million KRW.