Triple-homeowners Face Capital Gains Tax of Up to 82.5%... Mortgages Allowed for First-time Buyers of Tenant-occupied Homes

Heavy Capital Gains Tax on Multiple-Home Owners Reinstated After Four Years
4?6-Month Grace Period for Contracts Signed by May 9
Two-Year Deferral of Owner-Occupancy for Homes with Existing Tenants
Final Payment for Gangnam 3 Districts and Yongsa

The system of increased capital gains tax on multiple-homeowners will be resumed after four years. Accordingly, if a three-homeowner sells a house on or after May 10, they will have to pay up to 82.5% of the capital gain (including local income tax) as tax. When a homeowner without a house purchases a property from a multiple-homeowner that is occupied by an existing tenant, the obligation to move in for actual residence will be deferred until the end date of the existing tenant’s lease contract. However, the buyer must move in no later than February 11, 2028. The obligation to move into the property, which is imposed when taking out a mortgage loan to buy a home, will also be deferred until "one month after the end date of the existing lease contract," so that a mortgage loan can be obtained even when purchasing a property owned by a multiple-homeowner with an existing tenant.

The "additional capital gains tax on owners of multiple homes" measure will be reinstated from May 9. Capital gains on the sale of homes in designated regulated areas held by owners of multiple homes will be taxed at up to 75% (82.5% including local taxes). On the 12th, a notice about the capital gains tax surcharge was posted on the exterior wall of a real estate agent's office in Seoul. Yonhap News

The Ministry of Finance and Economy, the Ministry of Land, Infrastructure and Transport, and the Financial Services Commission announced on the 12th that they will pre-announce legislation for the Enforcement Decree of the Income Tax Act and the Enforcement Decree of the Act on Report on Real Estate Transactions, Etc. starting from the 13th, and that they are pushing to promulgate and implement the amendments within this month.

First, the government will end, as scheduled, on May 9 the temporary suspension of the increased capital gains tax on multiple-homeowners. The Yoon Suk Yeol administration temporarily suspended the increased capital gains tax for one year in May 2022 and has since extended the suspension by one year every year. Cho Manhee, Director of the Tax Policy Office at the Ministry of Finance and Economy, explained, "We decided to end the temporary suspension of the increased capital gains tax on multiple-homeowners as originally scheduled in order to restore the predictability of policy and normalize the real estate market."

Cho Manhee, Director of the Taxation Office at the Ministry of Finance and Economy, and Yoon Deokgi, Head of the Macro-Finance Team at the Financial Services Commission (left), and Park Junhyung, Director of Land Policy at the Ministry of Land, Infrastructure and Transport (right), are briefing at the Government Sejong Complex on Dec. 12 on "the end of the deferment of increased capital gains tax for multiple homeowners and supplementary measures." Yonhap News

When the increased capital gains tax on multiple-homeowners is resumed after four years, multiple-homeowners in regulated areas will be subject to the basic capital gains tax rate of 6% to 45%, plus an additional 20 to 30 percentage points depending on the number of homes owned. Including local income tax, the effective tax rate can soar to as high as 82.5%.

As the suspension of the increased tax is lifted, the government also included special provisions for homes owned by multiple-homeowners that are occupied by existing tenants. In October last year, the government designated all of Seoul and 12 major areas in Gyeonggi Province as Land Transaction Permission Zones to curb gap investment and imposed an obligation of actual residence. The new special rules reflect market opinions that, due to this ban on gap investment, multiple-homeowners would find it difficult to sell their homes in these zones within the deadline.

First, when a homeowner without a house purchases a property from a multiple-homeowner that is occupied by a tenant, a grace period of 4 to 6 months for the end of the increased-tax suspension will be granted. In the existing regulated areas, such as the three Gangnam districts (Gangnam, Seocho, Songpa) and Yongsan District, if a sale contract is signed by May 9, a four-month period (until September 9) will be granted, which is one month longer than initially announced by the government. For the remaining 21 newly regulated districts and 12 areas in Gyeonggi Province (Gwacheon, Gwangmyeong, Suwon Yeongtong, Jangan, Paldal, Seongnam Bundang, Sujeong, Jungwon, Anyang Dongan, Yongin Suji, Hanam, and Uiwang), if the final payment and registration are completed by November 9, the increased capital gains tax will not be applied.

This is intended to provide an additional two-month grace period in consideration of the fact that these areas were newly designated last year. Cho Manhee, Director of the Tax Policy Office at the Ministry of Finance and Economy, explained, "The government had initially considered a three-month grace period, but we aligned the period for final payment and registration to four months, the same as the preparation period granted from the date of permit to fulfill the actual-residence obligation in Land Transaction Permission Zones."

When a homeowner without a house purchases a property occupied by an existing tenant, the actual-residence obligation will also be deferred. It will be deferred until the end date of the initial lease contract under the lease agreement that is in place as of the date of the announcement, which is today. Using today, the announcement date, as the starting point, the buyer must move in for actual residence by February 11, 2028 at the latest, which is within two years. However, the tenant’s right to request renewal of the lease (two years) will not be recognized.

The obligation to move into the property, which is imposed when taking out a mortgage loan, will be eased. Currently, when a buyer purchases a home with a mortgage loan, they must move into the property within six months from the date the loan is executed. With the deferral of the actual-residence obligation, this requirement will also be deferred until "the later of six months from the loan execution date or one month from the end date of the lease contract." As a result, when a homeowner without a house purchases a property owned by a multiple-homeowner that is occupied by a tenant, they will be able to obtain a mortgage loan.

Yoon Deokgi, Head of the Macroeconomic and Financial Team at the Financial Services Commission, explained, "In line with the deferral of the actual-residence obligation, we also decided to defer the obligation to report move-in for mortgage loans," adding, "The deferral of the actual-residence obligation and the obligation to report move-in for mortgage loans is limited to cases where a multiple-homeowner sells a home in a regulated area to a homeowner without a house."