One-Homeowners with Pre-Sale Rights... Capital Gains Tax Exemption Special Case to be Introduced by Year-End

From Next Year, Pre-sale Rights Also Classified as 'Housing'
Enforcement Decree Revision Expected by Year-End

Existing Housing Disposal Period to Be Decided After Further Discussion

[Asia Economy Reporter Donghyun Choi] The government has sounded the alarm for construction companies preparing for apartment pre-sales as it plans to include apartment pre-sale rights in the housing count when calculating capital gains tax starting next year. Currently, the starting point for disposing of existing homes is the move-in date of the pre-sale rights, but this will be moved forward to the acquisition date of the pre-sale rights. Moreover, since the specific disposal deadline has not yet been set, sales sites are unable to provide accurate information to contract holders.

According to the Ministry of Economy and Finance and industry sources on the 20th, the Ministry recently amended the Income Tax Act to include pre-sale rights in the housing count for capital gains tax calculation starting next year. Subsequently, it plans to establish regulations related to tax exemption special cases for temporary ownership of one house plus one pre-sale right through an amendment to the Enforcement Decree of the Income Tax Act by the end of this year. Starting next year, pre-sale rights will be included in the housing count when imposing capital gains tax. Unlike move-in rights, pre-sale rights currently have no tax exemption special cases, causing confusion among actual buyers trying to switch homes.

A Ministry of Economy and Finance official told Asia Economy, "The amendment to the Enforcement Decree will be made within this year to align with the inclusion of pre-sale rights in the housing count from January 1 next year," adding, "However, the period for disposing of the existing home for tax exemption purposes will be decided after further discussion."

Recently, the government passed the so-called 'Real Estate 3 Acts (Amendments to the Corporate Tax, Income Tax, and Comprehensive Real Estate Tax Acts)' at the Cabinet meeting to support the July 10 real estate measures. The amendment to the Income Tax Act includes a provision that from January 1, 2021, pre-sale rights will be included in the housing count when calculating the number of houses owned by multi-homeowners subject to capital gains tax surcharges. Since pre-sale rights are not existing homes, they were not considered houses for tax purposes except temporarily when applying for loans or subscription. However, for the first time, pre-sale rights will be regarded as houses when imposing capital gains tax. For example, a person owning one house and one pre-sale right is currently considered a single homeowner but will be regarded as owning two houses from January 1 next year. In such cases, capital gains tax will be imposed with a 10 percentage point surcharge on top of the basic tax rate (6-42%). However, the increased tax rate will apply only to transfers made after June next year.

Unlike pre-sale rights, move-in rights for cooperative members currently have a capital gains tax exemption special case. According to the current Enforcement Decree of the Income Tax Act, if a single homeowner acquires a move-in right before transferring the house, capital gains tax exemption is applied to the previous house if it is sold within three years from the acquisition date of the move-in right. Considering this, it is highly likely that a three-year grace period will also apply to the capital gains tax exemption special case for temporary ownership of one house plus one pre-sale right. A Ministry of Economy and Finance official explained, "We will prepare the capital gains tax exemption special case for pre-sale rights by referring to the method applied to move-in rights."

The problem arises if the disposal deadline for the existing home for the tax exemption special case is shorter than this. Considering that it generally takes about three years from pre-sale to move-in, the industry argues that at least this period should be guaranteed. If the grace period is only one to two years, a residential gap may occur between disposing of the existing home and moving into the new apartment, causing residential instability. Mr. Choi, a worker in his 40s, said, "I think three years is already ambiguous, but if it is two years, after obtaining the pre-sale right, I would have to sell my house by the payment date and live in a monthly rental for a few months before moving into the new house," adding, "For large-scale apartment complexes, it often takes more than three years from pre-sale to move-in, so I hope the government considers this situation carefully."

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