'Tighter 7·10 Real Estate Tax Measures'

Capital Gains Tax up to 72% for Multiple Homeowners
Gift Acquisition Tax Proposed to Increase from 3.5% to 12%

[Asia Economy Reporter Jang Sehee] The government's July 10 real estate measures encompass all previously announced real estate tax systems, targeting from single-homeowners to multi-homeowners, rental business operators, and corporations. Most of the focus is on strengthening tax policies by raising tax rates or reducing benefits compared to before. With this tax reform added to the realization of official land prices and the increase in the fair market value ratio, almost all homeowners or prospective buyers may be affected, so careful verification is necessary. The government has also announced additional measures for gift acquisition tax, which was excluded from this plan. Complaints may intensify starting next year when the related laws are passed and applied in the field.

The government's July 10 real estate measures target both multi-homeowners and speculative short-term traders simultaneously. First, the comprehensive real estate tax (CRE tax) top rate for multi-homeowners will be raised to 6%, and a uniform 6% rate will be applied to corporations holding multiple homes. For those with three or more homes and two-homeowners in regulated areas whose taxable base exceeds 9.4 billion KRW, the top CRE tax rate will be 6%, and a 5% rate will apply to taxable bases between 5 billion KRW and 9.4 billion KRW. This is a stronger measure than the one announced in the December 16, 2020 plan (0.8~4.0%).

According to the Ministry of Economy and Finance's data on "Changes in tax burden for multi-homeowners due to CRE tax increase," if the combined market value of multiple homes is 10 billion KRW, the CRE tax in 2021 was calculated at 319.45 million KRW. Considering that the CRE tax for the same market value this year is 128.11 million KRW, it increases by about 2.5 times.

A uniform top rate of 6.0% will be applied to corporations holding multiple homes. The basic deduction of 600 million KRW and the tax burden cap that apply to individuals will not apply to corporations' CRE tax on housing.

Capital gains tax burden will also increase when selling short-term held homes. For multi-homeowners selling homes in regulated areas, the additional tax rate will be raised by 10 percentage points from the current rate, resulting in a 20 percentage point surcharge for two-homeowners and a 30 percentage point surcharge for three-homeowners. However, to prevent a freeze in housing supply, the government allows the current tax rates to apply if the sale is completed by the end of May next year. For holdings under one year, the capital gains tax rate jumps from 40% to 70%. For holdings under two years, which previously applied the basic rate, the capital gains tax rate will be raised to 60%.

Multi-homeowners holding multiple properties in regulated areas will face even higher tax burdens. The surcharge increases by 10 percentage points, resulting in a 20 percentage point surcharge for two-homeowners and a 30 percentage point surcharge for three-homeowners. Including the basic rate, the capital gains tax rates reach 62% and 72%, respectively.

Acquisition tax rates for multi-homeowners and corporations will also increase. Two-homeowners will pay 8%, and those with three or more homes or corporations will pay 12% acquisition tax. Currently, acquisition tax ranges from 1% to 4% depending on the housing price and number of homes owned.

The gift acquisition tax rate, payable when receiving a gifted home, is expected to rise from the current 3.5% to up to 12%. In response to analyses that gifting is more advantageous than selling due to increased capital gains tax rates, the government is preparing additional measures. Currently, a single rate of 3.5% (4.0% including rural special tax and local education tax) is uniformly applied to the standard market price for gift acquisition tax.

The government will also abolish tax benefits for 4-year short-term rental and 8-year long-term general apartment rental business operators. However, the mandatory period for long-term rental types will be extended from 8 years to 10 years to strengthen public obligations.

However, benefits for first-time homebuyers and newlyweds have been increased. The special supply quota for first-time buyers will be significantly expanded from the existing 20% to 25%. Also, the income eligibility criteria for newlywed special supply applications will be relaxed from 120% of average monthly income (130% for dual-income households) to 130% (140% for dual-income households). On the other hand, the government has firmly stated that it is not considering lifting Greenbelt restrictions or easing reconstruction regulations.

Meanwhile, the government plans to establish an inter-ministerial task force on expanding housing supply, chaired by the Deputy Prime Minister for Economy, to devise fundamental measures to increase housing supply. The task force will discuss raising floor area ratios in the 3rd new towns, utilizing sites for institutional relocations, and public-managed reconstruction and redevelopment projects, with additional measures expected as early as this month.

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