[Practical Finance] Soaring Officially Announced Prices... How to Reduce Property Tax Even by a Penny?

Increase in High-Value Homes Breaks 'Jongbu Tax = Wealth Tax' Formula
Some Open Overdraft Accounts to Pay Holding Tax
Reduced Tax Burden on Spousal Gifts
To Profit from Sales, Must Sell by Next Month at Latest

[Asia Economy Reporter Moon Jiwon] As June 1st, the date for imposing property holding tax, approaches, concerns over taxes are growing among owners of high-priced homes. This is because the official prices of apartment complexes nationwide have risen sharply compared to last year, and the burden of property tax and comprehensive real estate holding tax (종합부동산세) is expected to increase significantly. With recent rapid increases in housing prices raising the official price realization rate (market price reflection rate) to around 70%, not only homeowners in the Gangnam area but also single-homeowners outside Gangnam are increasingly subject to the comprehensive real estate holding tax. Homeowners are busy looking for tax-saving methods to reduce their tax burden, which can amount to tens of millions of won.

◆ Official Prices Soar, Holding Tax Burden Not Light= On the 29th of last month, the Ministry of Land, Infrastructure and Transport announced the confirmed official prices of apartment complexes for this year, which rose by an average of 5.98% nationwide and 14.73% in Seoul. The holding tax burden on high-priced homes has also increased. The price increase rate for homes priced over 900 million won was 21.12%, showing that the higher the market price, the greater the change in official price. In particular, ultra-high-priced homes over 3 billion won jumped 27.40% compared to last year, with the realization rate approaching 80%.

The real estate industry focuses on official prices because they serve as the basis for levying property tax and comprehensive real estate holding tax. The comprehensive real estate holding tax is imposed on the amount exceeding 600 million won for a home including attached land. For single-homeowners per household, the deduction amount is 900 million won. When it was first implemented in 2005, it was seen as a tax paid only by a few wealthy individuals, but with the median price of apartments in Seoul exceeding 900 million won and housing prices rising sharply, the number of taxpayers has greatly increased.

This year, a homeowner with an 84.89㎡ (exclusive area) unit in Mapo Raemian Prugio in Mapo-gu, Seoul, must pay about 3.3 million won in holding tax, which is about 980,000 won more than last year. A homeowner owning two units, 84.43㎡ in Eunma Apartment and 84.97㎡ in Raemian Daechi Palace in Gangnam-gu, faces a holding tax of a staggering 61.44 million won. Without a steady income and only owning homes, this amount is burdensome. The rush to sell quickly or gift properties in the Gangnam area ahead of the holding tax imposition date is due to this. An industry insider said, "People with one or two homes in Seoul who do not have high income even create overdraft accounts to pay taxes."

◆ Reduce Taxes by Distributing Ownership? The first method to consider to lower the comprehensive real estate holding tax is gifting between spouses. Since the tax is levied per individual, a single homeowner with a home valued over 900 million won must pay the tax if held under one name. However, if ownership is split into joint names between spouses, each person can be exempt from the tax on homes with official prices up to 600 million won per person, or 1.2 billion won combined. Unlike children, spouses can gift up to 600 million won over 10 years without incurring gift tax, so the burden from gifting is relatively low.

However, if the gift amount greatly exceeds 600 million won and the gift tax burden is high, or if the home has been held long enough to benefit from comprehensive real estate holding tax credits, gifting between spouses is not always advantageous. In such cases, burdened gifting to children can be a solution. A commercial bank official said, "Multi-homeowners in the three Gangnam districts often consider burdened gifting because it lowers tax burden while allowing them to enjoy future capital gains." According to the court registry information plaza, the number of apartment complex gift applications in Seoul last month was 1,648, a 57.1% increase compared to the previous month.

If an apartment with a jeonse (long-term lease deposit) is gifted with burden, capital gains tax is imposed on the jeonse deposit portion, and gift tax on the remaining portion, thus dispersing the tax base and reducing the total tax amount. Additionally, gifting raises the acquisition cost for children, lowering the capital gains tax they must pay when selling later. If the property will be inherited anyway, choosing burdened gifting can avoid unnecessary taxes like inheritance tax. A frontline tax consultant at a commercial bank said, "Since children cannot afford to buy homes in Gangnam with their salaries, wealthy Gangnam residents want to take this opportunity to provide homes for their children."

◆ Hurry if You Plan to Sell= If considering a third-party sale, it is best to transfer ownership before July 1st to avoid holding tax. The recent unusual transactions in Seoul at prices several hundred million won below market value are explained by real estate offices as urgent sales for tax saving purposes. Considering the possibility of a significant increase in holding tax burden next year, it is advisable to sell before June 30th to benefit from the exemption from capital gains tax surcharges when selling homes held for over 10 years. From July, multi-homeowners selling homes in regulated areas will face a 10-20 percentage point increase in tax rates and will find it difficult to receive long-term holding special deductions.

Multi-homeowners are expected to suffer from increased comprehensive real estate holding tax burdens for at least the next few years. This is because the Democratic Party, which won the April 15 general election decisively, is strongly pushing a bill to raise tax rates by 0.1 to 0.8 percentage points. Until now, even with sharp rises in official prices, holding tax was capped at 200% of the previous year's total tax amount, limiting the burden, but if the law passes, the cap will increase to 300% starting next year.

The Democratic Party originally planned to pass the law in the 20th National Assembly and apply the amendments from this year, but opposition from the Future United Party delayed implementation until next year. However, there is a possibility that the comprehensive real estate holding tax for single-homeowners or low-income elderly retirees will be lowered. In fact, there is a strong sentiment within the Democratic Party to reduce tax burdens on actual home users.

This content was produced with the assistance of AI translation services.