[Yoon Administration Tax Law] Comprehensive Real Estate Tax Changes from 'Number of Houses to Value' Basis... Maximum Tax Rate Reduced to 2.7%

Taxation Based on Property Value, Not Differentiated by Number of Houses... Tax Rate Reduced from 0.6~6.0% to 0.5~2.7%
Housing Comprehensive Real Estate Tax Deduction Increased from 600 Million to 900 Million Won... Single Homeowners Get 1.2 Billion Won
Combined Official Price of 3 Billion Won for Two-Homeowners' Holding Tax Decreases from 66.64 Million to 14.63 Million Won

[Asia Economy Sejong=Reporters Kwon Haeyoung and Kim Minyoung] The government will abolish the comprehensive real estate tax (종합부동산세) heavy taxation system applied to multi-homeowners and will impose the tax based on property value rather than the number of houses. The tax rate will be lowered from the current maximum of 6% to 0.5~2.7%. The government's policy is to normalize the real estate tax system, which has been distorted into a 'punitive measure,' by eliminating the tax burden gap based on the number of houses and easing the tax burden to an appropriate level. Accordingly, the holding tax for a two-homeowner with a combined official property price of 3 billion KRW in a regulated area is expected to drop significantly from 66.64 million KRW in 2021 to 14.63 million KRW next year.

Comprehensive Real Estate Tax: From Number of Houses to Property Value-Based Taxation... Tax Rate Reduced to 0.5~2.7%

The Ministry of Economy and Finance announced the '2022 Tax Reform Plan' on the 21st, which includes these changes. The core of this real estate tax reform is shifting the tax base from 'number of houses' to 'property value' and lowering the tax rates. Currently, a basic tax rate of 0.6~3.0% is applied to single-homeowners, and a heavy tax rate of 1.2~6.0% is applied to multi-homeowners.

According to the government's tax reform plan, the tax rates will be applied as follows: ▲0.5% for property value up to 300 million KRW ▲0.7% for 300 million to 600 million KRW ▲1.0% for 600 million to 1.2 billion KRW ▲1.3% for 1.2 billion to 2.5 billion KRW ▲1.5% for 2.5 billion to 5 billion KRW ▲2.0% for 5 billion to 9.4 billion KRW ▲2.7% for over 9.4 billion KRW. A new tax bracket of '1.2 billion to 2.5 billion KRW' has been created to rationally adjust the previously too broad '1.2 billion to 5 billion KRW' bracket. For corporations, the current single tax rate is 3.0% for one house and 6.0% for multiple houses, but going forward, a single tax rate of 2.7% will be applied regardless of the number of houses. The tax burden cap, currently differentiated at 150% for one house and 300% for multiple houses, will be unified at 150%.

An official from the Ministry of Economy and Finance explained, "This is to normalize the real estate tax system, which has deviated from the purpose of managing the real estate market, and to eliminate the tax burden gap based on the number of houses between single-homeowners and multi-homeowners," adding, "We will ease the tax rate system, which had low public acceptance due to excessive tax burden, to an appropriate level."

Basic Deduction for Housing Comprehensive Real Estate Tax Raised from 600 Million KRW to 900 Million KRW... 1-Homeowners Get 1.2 Billion KRW

The basic deduction amount for housing comprehensive real estate tax will also be raised from the current 600 million KRW to 900 million KRW starting in 2023. For single-homeowner households, it will increase from 1.1 billion KRW to 1.2 billion KRW. This takes into account that there has been no adjustment to the basic deduction since 2006, the official apartment prices rose by 63.4% from 2018 to 2022, and the capital gains tax high-priced housing threshold is 1.2 billion KRW. However, this year, a special deduction of 300 million KRW will be applied in addition to the 1.1 billion KRW basic deduction for single-homeowners. As a result, the taxable base is expected to increase from 1.1 billion KRW to 1.4 billion KRW.

A tax payment deferral system for comprehensive real estate tax will also be introduced for elderly and long-term holders who lack cash liquidity. If the following conditions are met: ▲60 years or older or held for more than 5 years ▲single-homeowner household ▲total salary below 70 million KRW (comprehensive income below 60 million KRW) ▲comprehensive real estate tax exceeding 1 million KRW, the payment of the comprehensive real estate tax will be deferred until the time of inheritance, gift, or transfer of the relevant property. Additionally, temporarily owning two houses, inherited houses, and low-priced houses in provincial areas will be excluded from the count of houses when determining single-homeowner status for comprehensive real estate tax purposes. The government plans to discuss these measures through member legislation at the August extraordinary session of the National Assembly.

Furthermore, the high-priced housing threshold for rental income taxation for single-homeowners will be raised from 900 million KRW to 1.2 billion KRW, aligning it with the comprehensive real estate tax standard. Small housing rental businesses with an area of 85㎡ or less and a price of 600 million KRW or less that increase rent by within 5% annually will have their income and corporate tax reduction benefits extended for three years.

Holding Tax for Two-Homeowners with Combined Official Price of 3 Billion KRW Drops from 66.64 Million KRW to 14.63 Million KRW

According to a comprehensive real estate tax change simulation provided by the Ministry of Economy and Finance, a single-homeowner holding an apartment with an official price of 2 billion KRW (including a 50% tax credit for elderly long-term holders and excluding the special rural tax cap) is expected to pay a total holding tax of 1.48 million KRW next year, which is about half of this year's 3.38 million KRW. This amount was calculated by applying the tax rate reduction, the increase in the basic deduction amount, and the 80% fair market value ratio, and is even lower than the 3.07 million KRW holding tax for the same house in 2020. However, this year's expected comprehensive real estate tax payment does not reflect the special deduction of 300 million KRW and the reduction of the fair market value ratio to 60%, which are currently under revision.

The holding tax burden decreases even more for high-priced apartments. For example, a single apartment with an official price of 2.5 billion KRW had a comprehensive real estate tax burden of 5.7 million KRW in 2019, 6.17 million KRW in 2021, and 6.74 million KRW in 2022, but it will drop to 3.3 million KRW next year. A single-homeowner living in a house with an official price of 3 billion KRW paid 10.05 million KRW and 10.82 million KRW in holding tax in 2021 and 2022 respectively, but next year will pay only 5.56 million KRW, about half. The 2020 comprehensive real estate tax was 8.83 million KRW.

If the government's proposed special deduction of 300 million KRW for single-homeowners and the reduction of the fair market value ratio to 60% are realized this year, a single-homeowner living in Mapo Raemian Prugio, Ahyeon-dong, Mapo-gu, Seoul, with an exclusive area of 84.59㎡, would not have to pay any comprehensive real estate tax this year. Although the official price of the 84.59㎡ unit at Mapo Raemian Prugio is 1.382 billion KRW and subject to comprehensive real estate tax, applying the special deduction of 300 million KRW reduces the official price to 1.082 billion KRW, excluding it from the tax base.

The tax burden for multi-homeowners holding two houses in regulated areas will also decrease significantly. For a two-homeowner with a combined official price of 3 billion KRW, the holding tax rose sharply from 29.87 million KRW in 2020 to 66.64 million KRW in 2021 but is expected to plummet to 14.63 million KRW next year, a 355% decrease. For two-homeowners with a combined official price of 2 billion KRW, the holding tax burden increased nearly threefold from 12.98 million KRW in 2020 to 28.28 million KRW in 2021 and 31.14 million KRW in 2022 but will fall to about 5.53 million KRW next year. This is because the heavy tax rate for multi-homeowners has been abolished, lowering the comprehensive real estate tax rate they pay from the current 1.2~6.0% to 0.6~2.7%, about half. Previously, multi-homeowners (two or more houses in regulated areas) were taxed at a higher heavy tax rate of 1.2~6.0% compared to the basic tax rate of 0.6~3.0% for single-homeowners.

Park Wongab, Senior Real Estate Specialist at KB Kookmin Bank, said, "Multi-homeowners in non-metropolitan areas with lower housing prices will benefit relatively more," adding, "Multi-homeowners in Gangnam and Mayongseong areas are also expected to see holding tax reductions, although less than those in provincial areas."