Short-term Transactions and Multiple Homeowners Subject to Capital Gains Tax Surcharge... Increased Comprehensive Real Estate Tax Rates Applied
Ruling Party to Conclude Discussions on Capital Gains and Comprehensive Real Estate Tax Reforms in June
Threshold for Top 2% Comprehensive Real Estate Tax Raised from 1.3 Billion to 1.6 Billion KRW
[Sejong=Asia Economy Reporter Moon Chaeseok] Starting from the 1st of next month, the highest capital gains tax rate when selling a house will increase to 75%. This means that the capital gains tax surcharge measures for short-term traders and multi-homeowners, which had been deferred for six months, will be implemented. The taxpayers subject to property tax and comprehensive real estate tax will also be finalized. However, the exact tax rates that will apply to them need to be observed further through subsequent discussions.
Capital Gains Tax 70% for Less Than 1 Year Ownership... Up to 75% for Multi-Homeowners
According to the government and the National Assembly on the 30th, the capital gains tax increase plan for multi-homeowners and short-term traders will be enforced starting next month. This means the six-month grace period set to encourage multi-homeowners to sell their properties is ending.
The new capital gains tax system raises the tax rate from the existing 40% to 70% when trading houses held for less than one year. For houses held between one and two years, the tax rate will increase from the basic rate (6?45%) to 60%.
The capital gains tax rate for multi-homeowners in regulated areas will also increase by 10 percentage points. Currently, two-homeowners pay the basic rate plus 10 percentage points, and those with three or more homes pay the basic rate plus 20 percentage points. Going forward, two-homeowners will pay the basic rate plus 20 percentage points, and three-homeowners will pay the basic rate plus 30 percentage points. This raises the highest capital gains tax rate from the existing 65% to 75%.
The Democratic Party's Real Estate Special Committee's proposal to raise the capital gains tax exemption threshold for single-homeowners from 900 million KRW to 1.2 billion KRW is still under review. The government and experts need to go through opinion gathering procedures next month, but there is currently a sense of opposition within the government. The opposition is based on the fact that, unlike the comprehensive real estate tax, income from house sales has already been realized, and that under the existing system, long-term holding and senior citizen deductions can provide up to 80% exemption. It is also evaluated that the ruling party has not yet secured sufficient favorable public opinion.
Property Tax and Comprehensive Real Estate Tax Taxpayers Finalized on June 1
The taxpayers subject to property tax and comprehensive real estate tax will also be finalized on June 1. This means the people who will pay holding taxes such as property tax and comprehensive real estate tax will be determined. Even if someone sells their house after June 1 and becomes homeless, they must still pay property tax and comprehensive real estate tax for that year. This is why those intending to avoid holding taxes by selling houses aimed to complete the final registration transfer by the end of this month.
This timing is only for finalizing taxpayers, and it is still undecided what tax rates will actually apply to them. Regarding property tax, the ruling party plans to raise the exemption cap from the current official price of 600 million KRW to 900 million KRW. This means that single-homeowners holding houses with an official price of 900 million KRW or less will receive a 0.05 percentage point reduction in property tax rates for three years. This is expected to apply to 590,000 apartment units in the 600 million to 900 million KRW official price range. However, the tax law revision must be completed next month.
Considering that property tax is paid in two installments in July and September, the time until the property tax bill is sent is tight.
From this year, the general tax rate for comprehensive real estate tax will increase from the current 0.5?2.7% to 0.6?3.0%. The tax rate applied to owners of three or more homes or two homes in regulated areas will increase from 0.6?3.2% to 1.2?6.0%. A flat 6% tax rate will apply to corporations. So far, many expect these increases to be applied as planned.
Comprehensive Real Estate Tax Top 2% Threshold Price Rises from 1.3 Billion KRW to 1.6 Billion KRW
The comprehensive real estate tax proposal for the top 2% of official land prices presented by the Real Estate Special Committee is a revised plan limited to single-homeowners and needs to be monitored further. Since there is considerable opposition within the ruling party, there is a possibility it could fail during discussions such as public hearings next month. The government’s plan maintains the current deduction amount but introduces long-term residence deductions and payment deferral systems and freezes the fair market value ratio. If this is also rejected, the current system may be maintained. The ruling party intends to reach a conclusion next month. The comprehensive real estate tax payment period is in December.
Based on this year's official prices, if the comprehensive real estate tax is changed to tax only the top 2% of house prices, the tax threshold for single-homeowners will rise from around 1.3 billion KRW in market price to about 1.6 billion KRW. This year, the price range corresponding to the top 2% of all houses is about 1.11 billion to 1.12 billion KRW in official price. For apartments and other multi-family housing, the 2% threshold rises to about 1.16 billion to 1.17 billion KRW.
Since the housing portion of the comprehensive real estate tax covers all houses nationwide, if the ruling party’s top 2% proposal is adopted, the threshold is likely to be 1.11 billion to 1.12 billion KRW. Assuming a 70% official price realization rate, this price corresponds to about 1.585 billion to 1.6 billion KRW in market price. This is about 300 million KRW higher than the current single-homeowner comprehensive real estate tax threshold of 900 million KRW official price, which converts to 1.29 billion KRW market price.
The Special Committee has announced it will consider additional measures for jointly owned single-homeowner couples. The key issue is whether to adjust the basic deduction amount of 600 million KRW for comprehensive real estate tax. Currently, jointly owned single-homeowner couples receive a total deduction of 1.2 billion KRW (600 million KRW each), which is 300 million KRW more than the 900 million KRW deduction for single ownership. If the 1.11 billion to 1.12 billion KRW range corresponding to the top 2% is applied as the single-homeowner comprehensive real estate tax threshold, jointly owned couples will still benefit.
However, if the official price is expected to rise steadily, the top 2% threshold will eventually exceed 1.2 billion KRW. Therefore, the possibility of adjusting the basic deduction cannot be ruled out. Democratic Party lawmaker Kim Byung-wook, who proposed revising the comprehensive real estate tax law to raise the single-homeowner tax threshold from 900 million KRW to 1.2 billion KRW, has argued that the basic deduction should also be raised from 600 million KRW to 700 million KRW.
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