Implementation of 'Ceiling System' to Limit Tax Base Increase to Under 5% YoY
Special Property Tax Benefits for Single-Home Owners on Local Second Home Purchases
This year, homeowners with a single house will continue to benefit from a fair market value ratio for property tax that is about 15 percentage points lower than that applied to multiple homeowners and corporations, reducing their property tax burden. For the first time, a 'tax base cap system' will be introduced to ensure that the taxable base does not increase by more than 5% compared to the previous year, even if the publicly announced property price soars.
The Ministry of the Interior and Safety announced that the revision of the Local Tax Act Enforcement Decree, aimed at alleviating housing cost burdens for low-income households and revitalizing local housing markets, was approved at the Cabinet meeting on the 21st. The revision will be promulgated within this month and is expected to be applied starting with this year’s property tax.
View of Seoul apartments from the observatory of 63 Building on the 3rd./Photo by Hyunmin Kim kimhyun81@
The revision extends the temporarily lowered fair market value ratio for property tax, which was set at 43-45% last year exclusively for single homeowners, through this year. This is about 15 percentage points lower than the rate applied to multiple homeowners or corporations. The fair market value ratio determines the proportion of the publicly announced property price reflected when calculating the taxable base for property tax and had been maintained at 60% until 2021. Due to the sharp rise in publicly announced property prices in 2021-2022, the government lowered this ratio to 45% in 2022 only for single homeowners to ease the tax burden. Last year, the rates were set at 43% for houses valued up to 300 million KRW, 44% for up to 600 million KRW, and 45% for those exceeding 600 million KRW.
The Ministry of the Interior and Safety also established specific criteria for implementing the tax base cap system for housing property tax, introduced by the Local Tax Act amendment last year. Previously, the taxable base for housing was determined without any separate cap according to the publicly announced property price, so a sharp increase in the announced price was directly reflected in the taxable base. Starting this year, even if the publicly announced property price rises sharply, the taxable base will be limited so that it does not exceed the cap amount, defined as the taxable base of the previous year increased by about 5%.
As part of efforts to revitalize local housing markets, a special property tax exemption for single homeowners will be applied to 'second homes' in population-declining areas. From January 4, 2024, to December 31, 2026, even if an additional house valued at 400 million KRW or less is acquired in a population-declining area, the special property tax exemption for single homeowners will apply to the existing house. Additionally, from March 28, 2024, for two years, when purchasing unsold apartments in local areas, the acquisition tax’s heavy tax rate (12%) will be excluded and the general tax rate (1-3%) will be applied.
The Ministry of the Interior and Safety plans to guide local governments to levy the 2024 property tax in accordance with the revised Local Tax Act Enforcement Decree to ensure smooth implementation. Hansunki, Director of the Local Finance and Economy Office at the Ministry, stated, “We have prepared measures to reduce the property tax burden and support housing tax benefits to assist the struggling low-income economy and revitalize the regional economy. We will continue to pursue improvements to the local tax system that resonate with residents.”
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