<기사제목>Comprehensive Real Estate Tax Up to 2.7% for Up to Two Houses... Exclusion from Heavy Taxation for Three Houses up to 1.2 Billion KRW

Apartment buildings in the Seoul area (Photo by Yonhap News)

[Asia Economy Reporter Ryu Tae-min] Regardless of whether the area is a regulated zone, the application of the comprehensive real estate holding tax (종부세) higher tax rate will be limited to those owning three or more houses. However, even if one owns three or more houses, if the taxable base does not exceed 1.2 billion KRW, the general tax rate rather than the higher tax rate will be applied.

According to the National Assembly and government authorities on the 12th, the ruling and opposition parties have reached an agreement on the amendment to the Comprehensive Real Estate Holding Tax Act containing this content and are in the final stages of coordination. The ruling and opposition parties agreed in the amendment that multi-homeowners subject to the comprehensive real estate holding tax will be defined as those owning three or more houses. Although the existing law also defined multi-homeowners as those owning three or more houses, it effectively considered those owning two or more houses as multi-homeowners because it included two-house owners in regulated areas.

Under the current Comprehensive Real Estate Holding Tax Act, higher tax rates are applied to multi-homeowners. A lower tax rate (general tax rate) of 0.6% to 3.0% is applied to single-homeowners and others, but multi-homeowners pay the comprehensive real estate holding tax at a higher rate of about double, ranging from 1.2% to 6.0%.

The amendment agreed upon by the ruling and opposition parties includes unifying the tax rate to a single rate of 0.5% to 2.7%. This approach eliminates the higher tax rate imposed on multi-homeowners and slightly lowers the general tax rate.

The opposition party insists that the dual tax rate system of general and higher tax rates should be maintained. The compromise reached by both parties is to consider those owning three or more houses as multi-homeowners regardless of whether the area is regulated and to apply the higher tax rate to them. Although the government and ruling party are not favorable to maintaining the dual tax rate system, they have agreed to accept the compromise since the category of multi-homeowners will significantly decrease as two-house owners in regulated areas will be taxed at the general tax rate.

During this process, both parties agreed to include a provision that even for those owning three or more houses, if the taxable base does not exceed 1.2 billion KRW, the general tax rate (0.5% to 2.7%) will be applied instead of the higher tax rate. This is based on the view that if the taxable base of three or more houses does not reach 1.2 billion KRW, the two or more houses other than the residence are likely to be inherited houses or farmhouses, not intended for speculation.

It is reported that the ruling and opposition parties have not yet agreed on the higher tax rate to be applied to those owning three or more houses with a taxable base exceeding 1.2 billion KRW. The opposition insists that the highest comprehensive real estate holding tax rate for multi-homeowners should be at least 5.0%, but the government and ruling party argue it should be set much lower than 5.0%.

The increase in the basic deduction amount for the comprehensive real estate holding tax has been agreed upon by both parties. For single-homeowner households, the threshold will be raised from the current 1.1 billion KRW to 1.2 billion KRW, and the basic deduction will increase from 600 million KRW to 900 million KRW. For couples with joint ownership, the basic deduction will rise to 1.8 billion KRW. For two-house owners in regulated areas, the tax threshold will increase from 600 million KRW to 900 million KRW, and since the general tax rate will apply instead of the higher tax rate, the tax burden is expected to be significantly reduced.