[Changes Next Year] Real Estate Tax System Strengthened Across the Board... Comprehensive Real Estate Tax Doubled, Capital Gains Tax Up to 70%

Government Announces 'Changes Starting from 2021'
Significant Increases in Comprehensive Real Estate Tax and Capital Gains Tax Rates, Pre-sale Rights Also Counted as Housing Units

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Kim Hyunjung] Tax rates related to real estate will be significantly increased next year, and deduction conditions will become more stringent. In particular, holding and transaction taxes targeting multi-homeowners will be strengthened, drawing attention.

According to the government’s announcement on the 28th titled "Changes Starting from 2021," the comprehensive real estate tax rate on housing will be raised from January next year. For those owning two or fewer houses, the tax rate will increase by 0.1 to 0.3 percentage points depending on the taxable standard bracket, while for those owning three or more houses or two houses in designated adjustment areas, the tax rate will rise by 0.6 to 2.8 percentage points per taxable standard bracket. Based on the highest bracket exceeding 9.4 billion KRW, the current general comprehensive real estate tax rate of 2.7% will increase to 3.0%, and the rate for multi-homeowners (three or more houses or two houses in designated adjustment areas) will rise from 3.2% to 6.0%.

The highest individual tax rate will be applied to corporate-owned houses, with a flat rate of 3% for two or fewer houses and 6% for three or more houses. The fair market value application ratio used to calculate the taxable standard based on the official housing price will also increase from 90% this year to 95% next year.

The tax burden cap for two-house owners in designated adjustment areas has been raised from 200% to 300%, and the tax burden cap for corporations has been abolished. Additionally, to reduce the burden on genuine single-homeowners, the tax credit rate for elderly owners holding one house per household has been increased by 10 percentage points per bracket, and the combined deduction limit has been raised from 70% to 80%. Regarding the controversial joint ownership deduction for married couples, couples can either each receive a deduction of up to 600 million KRW, totaling 1.2 billion KRW, or one spouse can claim the deduction under their name and choose the more favorable option between the elderly deduction or long-term holding deduction.

Capital gains tax rates for multi-homeowners in designated adjustment areas will also increase. For the special long-term holding deduction on one house per household with a transaction price exceeding 900 million KRW, a residency period requirement will be added. The deduction rate, which was 8% per year of holding period, will be adjusted from January 1 next year for transfers to 4% for holding period plus 4% for residency period. Tax rates for houses held less than two years or for multi-homeowners in designated adjustment areas will increase from June next year. The current capital gains tax rate of 40% for houses held less than one year will rise to 70%, and a flat rate of 60% will apply to houses held between one and two years. Even if pre-sale rights have been held for more than two years, a 60% heavy tax rate will apply.

The heavy capital gains tax rate for multi-homeowners will also increase by 10 percentage points. When multi-homeowners sell houses in designated adjustment areas, currently two-house owners pay an additional 10 percentage points on the basic tax rate, and those owning three or more houses pay an additional 20 percentage points; these will be raised to 20 percentage points and 30 percentage points, respectively. From January next year, newly acquired pre-sale rights will be counted as part of the number of houses along with cooperative member move-in rights to determine eligibility for capital gains tax exemption and heavy tax rate application.

To ease the housing acquisition burden for low- and middle-income households, the government will raise the price threshold for applying long-term housing mortgage interest deductions on housing pre-sale rights from 400 million KRW to 500 million KRW for loans borrowed from January 1 next year.

Additionally, through the booklet "Changes Starting from 2021," the government raised the highest income tax rate by establishing a new bracket for comprehensive income tax standards exceeding 1 billion KRW and adjusting the tax rate for the over 1 billion KRW bracket from 42% to 45%. This was explained as "to improve tax fairness and strengthen income redistribution functions." Furthermore, the government introduced the following: excluding seasoning liquors such as cooking wine from liquor tax, allowing OEM liquor manufacturing using other manufacturers’ facilities, imposing individual consumption tax on electronic cigarettes using nicotine solution, adding non-business entities and simplified bookkeeping subjects to the penalty tax for issuing false invoices, mandating dedicated insurance for business-use vehicles for sincere reporting confirmation subjects and professional business operators, and adding nine industries including hairdressing and electronic commerce retail to the mandatory cash receipt issuance targets.

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