First Home Purchase, Acquisition Tax Reduced Up to 2 Million KRW... Proposal to Lower Comprehensive Real Estate Tax Rates [6·21 Real Estate Measures]

The 1st Real Estate Ministers' Meeting

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho (far right) is presiding over the first real estate-related ministers' meeting of the Yoon Seok-yeol administration at the Government Seoul Office Building on the 21st. In the center is Minister of Land, Infrastructure and Transport Won Hee-ryong. 2022.6.21 [Image source=Yonhap News]

[Asia Economy Sejong=Reporter Son Seon-hee] The government has decided to exempt acquisition tax up to 2 million won without restrictions on housing prices and annual income for those buying a house for the first time in their life. A fundamental reform plan, including a reduction in the comprehensive real estate holding tax (종합부동산세, Jongbuse), will also be announced next month.

According to related ministries such as the Ministry of Economy and Finance and the Ministry of the Interior and Safety on the 21st, anyone purchasing a house for the first time in their life will be exempt from acquisition tax. However, to alleviate the local financial burden caused by the decrease in acquisition tax revenue, which is a local tax, and to prevent excessive benefits for high-priced houses, the exemption limit will be capped at 2 million won.

Specifically, until now, acquisition tax was only reduced for households with an annual income of 70 million won or less (combined for couples) when purchasing a first home priced at 400 million won or less in the metropolitan area or 300 million won or less in non-metropolitan areas. Going forward, this income restriction will be removed. Additionally, the housing price limit condition, which only allowed a 50% reduction if the house price exceeded 150 million won, has been abolished due to criticisms that it has become ineffective as housing prices have surged in recent years.

The government plans to revise the Local Tax Special Cases Restriction Act in the second half of this year to implement this. Meanwhile, to prevent homebuyers from being disadvantaged, the exemption will be applied retroactively to houses acquired after today. According to the Ministry of Economy and Finance, the number of beneficiary households from this expanded acquisition tax exemption is estimated to more than double from the existing 123,000 households per year to 256,000 households.

The most anticipated reform plan for the comprehensive real estate holding tax was not included in this real estate measure. However, the Ministry of Economy and Finance has maintained the stance of reducing the holding tax burden on real estate and has announced a "reduction in the Jongbuse rate." During the last election, President Yoon Seok-yeol pledged to abolish the Jongbuse, leading some to speculate that it might be eliminated by integrating it with local taxes. However, since it is not easy to realize this immediately under the current tax system, the focus appears to be on lowering the tax rate to reduce the actual burden. Deputy Prime Minister Choo said, "We will finalize a fundamental reform plan, including tax rate adjustments for Jongbuse by July and reflect it in the tax law amendment."

Along with this, the criteria for being judged as a "single household with one house" for temporary two-households due to moving, inherited houses, and low-priced houses in local areas have been specified more clearly. This is to prevent cases where excessive taxation is unfairly applied due to unavoidable reasons. However, even if judged as a single homeowner, all properties will be combined for the tax base.

The housing official price system, identified as the fundamental cause of the holding tax burden, will also be revised. The appropriateness of the existing target realization rate and target achievement period will be reexamined, and a flexible adjustment mechanism will be considered to prepare for exceptional situations such as economic crises or rapid real estate price surges. The government announced that it will start related research projects this month and prepare supplementary measures by November through consultations with related ministries, public hearings, and deliberations by the Central Real Estate Price Public Announcement Committee.