Even with New Lease Rent Raised Within 5%, It Is Considered a Win-Win Landlord... Relaxation of Capital Gains Tax Exemption Requirements

New Contracts Also Included in Incentives for Win-Win Landlords
Alternative Proposed Amid Concerns Over Side Effects of the Three Lease Laws

The sun is setting over the city viewed from the summit of Yongmasan in Jungnang-gu, Seoul. It has been a tumultuous year marked by soaring real estate prices, the KOSPI reaching the 3000 era, K-Culture captivating the globe, the first launch of Nuriho, and the disruption of daily life recovery due to COVID-19 variants. In the new year, I hope South Korea will move toward a better world like a river flowing toward the vast ocean. /Photo by Mun Ho-nam munonam@

[Sejong=Asia Economy Reporter Kim Hyunjung] Landlords can be recognized as win-win landlords even if they enter into a new lease contract with a different tenant after the expiration of the previous contract and raise the rent by up to 5% compared to the previous contract. This is because the government has decided to include not only renewal contracts but also new contracts in the relaxation of the actual residence period (from 2 years to 1 year) for the application of capital gains tax exemption special cases for win-win landlords.

According to the Ministry of Economy and Finance on the 3rd, new contracts will be included in the current win-win landlord incentive system. The win-win landlord incentive aims to relax the actual residence period from 2 years to 1 year for landlords who raise rent by up to 5% compared to the previous contract (including maintaining or lowering rent) in order to qualify for capital gains tax exemption special cases. The government announced that this relaxation standard will apply to contracts from last month 20th, when the economic policy direction was announced, until December 31 of this year.

This measure was introduced amid concerns over side effects such as tenants exercising their right to renew lease contracts immediately after the implementation of the Three Lease Laws in 2020 and signing many new contracts with significantly increased rents in the second year, this year. Under current law, a single household with one house is exempt from capital gains tax if held for more than 2 years as of the transfer date, but in regulated areas, a 2-year actual residence requirement must also be met.

As the minimum period tenants can reside in one house through the right to renew lease contracts was extended from 2 years to 4 years, it became more difficult for landlords to meet the actual residence requirement for capital gains tax exemption special cases. Consequently, cases of landlords evicting tenants citing actual residence to meet this requirement have recently increased. As a solution to this problem, the government proposed granting capital gains tax exemption benefits to win-win landlords (one house) who actually reside for only 1 year. Furthermore, new lease contracts with new tenants will also be included within the scope of win-win landlords. The government judged that limiting the rent increase rate to within 5% even for new contracts would have an overall stabilizing effect on the lease market.