Apartments Sold Cheaply to Family Members to Face Up to 12% Acquisition Tax: Regarded as Gifts

Local Tax Act Amendment to Block Irregular Gifting
"Effectively Restricts Gifts... Criticism of Excessive Regulation"

The government is pushing for a plan to consider real estate transactions between family members-such as parents and children-at prices significantly lower than market value as gifts, imposing an acquisition tax of up to 12%.

According to the Ministry of the Interior and Safety on October 25, the ministry submitted a partial amendment to the Local Tax Act to the National Assembly on October 16. The amendment stipulates that even if payment is made in real estate transactions between spouses or direct lineal relatives, if the transaction price is significantly lower than the market price, it will be regarded as an acquisition by gift.

This measure comes in response to the recent increase in attempts to avoid tax burdens through "sales disguised as gifts" among family members following the strengthening of real estate regulations. The ministry aims to implement the law in January next year if it passes the National Assembly.

Apartment complexes in downtown Seoul. Photo by Yonhap News

Previously, family transactions were recognized as ordinary paid transactions if payment could be proven, and an acquisition tax of 1-3% was applied. If the amendment is enacted, a gift acquisition tax of up to 12% will be imposed on low-priced family transactions in regulated areas. Outside regulated areas, the basic tax rate of 3.5% will apply. In contrast, ordinary transactions where there is little difference between market value and transaction price will continue to be subject only to the existing 1-3% acquisition tax.

The criteria for determining low-priced transactions will be set by presidential decree, with the current standards used in the Inheritance and Gift Tax Act-namely, a difference of 30% or more from market value or more than 300 million won-being strongly considered. The ministry stated, "We will review exceptions to ensure that those without the ability to pay are not taxed."

The government cites recent cases in Seoul and parts of Gyeonggi Province where transactions between relatives were confirmed at prices several hundred million won below market value. According to the Ministry of Land, Infrastructure and Transport's real transaction price disclosure system, a 59-square-meter apartment in Mapo-gu, Seoul, was sold for 1.65 billion won on October 17, which is 750 million won lower than the highest price (2.4 billion won) recorded in the same month.

This amendment has been promoted as part of the local tax reform plan announced in August and was submitted immediately after the October 15 real estate policy announcement, leading some to interpret it as a measure linked to market regulation.

Meanwhile, it is reported that thousands of opposition comments have been posted in the public opinion section for the legislative notice of the bill. Critics argue that, in a situation where the supply of properties is already shrinking due to strengthened regulations on multiple home ownership, virtually restricting gifts as well constitutes excessive regulation. In response, the government explained, "This is a reasonable adjustment to block irregular gifts that exploit low-priced transactions."