Be Sure to Check When Buying or Selling a House... Missing the Tax Base Date Could Mean a 'Tax Bomb' [Heotdari Economy]

As of June 1, Property Owners Must Pay Property Tax
Same Applies to Homes and Land Subject to Comprehensive Real Estate Tax

Editor's NoteMany people thought it was a smart economic activity to get something better, but it often turned out to be a misstep. When deceived by corporate marketing or blinded by momentary gains, making wrong decisions ultimately harms the consumer. We aim to examine economic activities in daily life where misjudging the subject leads to mistakes, or "missteps."

If you are about to enter into a real estate contract for a house, land, or other property, there is something you must keep in mind. Location? School district? Transportation? Add one more: the tax base date. Overlooking this could result in a tax bomb in July or September.

According to Article 107, Paragraph 1 of the Local Tax Act, the obligation to pay property tax is given to the person who actually owns the property as of the property tax base date. The base date for taxation on properties such as houses and land is June 1. Taxes are not paid proportionally based on the ownership period but rather the owner as of the tax base date must pay the full year's tax for that year.

Therefore, if you are the buyer, you must receive ownership after June 2 to avoid paying property tax for the entire year. Instead, the previous owner as of June 1, i.e., the seller, will pay the tax on the property during the payment periods in July and September. Conversely, if you are the seller, you must transfer ownership by June 1 to avoid the obligation to pay the full year's property tax.

What is the criterion for determining property ownership? The earlier date between the payment settlement date and the ownership transfer registration date is considered the point of ownership transfer. Simply put, these are the balance payment date and the registration receipt date, respectively. In most cases, since the balance is paid before the registration is submitted, the balance payment date is generally used. Note that ownership is not considered transferred based solely on contract agreement or deposit payment.

For example, seller A and buyer B signed a contract for an apartment in mid-May. If B completes the balance payment or ownership transfer registration by June 1, B will pay the property tax for the apartment this year. However, if B completes the balance payment or registration after June 1, i.e., on June 2, A will pay the tax on the property because A was the owner as of the tax base date.

Of course, it can feel unfair to pay a full year's tax on a property due to a one-day difference caused by overlooking the tax base date. For buyers, if ownership changes on June 1, they must pay the full year's property tax even though they did not enjoy the benefits of the house until May 31. For sellers, if they sell the house on June 2, they must pay the full year's tax even though they no longer enjoy the benefits of the house from that date, which is also unreasonable.

In this regard, the National Assembly has proposed amendments to the Local Tax Act. These include prorating property tax based on the holding period (proposed by Representative Joo Seung-yong of the People's Party in 2016) or dualizing the tax base date (proposed by Representative Kim Ye-ji of the People Power Party in 2020). However, these proposals failed to pass the standing committee due to concerns about increased administrative costs and impacts on the tax system.

In 2008, the Constitutional Court also ruled that imposing the full annual property tax based on ownership as of the tax base date, regardless of the holding period, is not an unreasonable discrimination. The main rationale is that property tax is based on the value of the property as a tax capacity, not on income generated from holding the property, and that the tax base date is necessary to improve tax collection efficiency and reduce collection costs.

Therefore, to avoid losses, both sellers and buyers must consider the tax base date when conducting transactions. To prevent unnecessary disputes over property tax payments later, it is advisable to agree at the time of contract on who will bear the property tax.

The same applies to the comprehensive real estate holding tax (Comprehensive Real Estate Tax, or CRET), which also has a tax base date of June 1. If you own a house with a publicly announced price of 900 million KRW or more (1.2 billion KRW for single-homeowners), combined land worth 500 million KRW or more, or separately combined land worth 8 billion KRW or more subject to CRET, you should consider the tax base date when buying or selling.