Expanded Tax Credits for Seniors and Long-Term Holders... Detailed Real Estate Policies Taking Shape

Considering raising the current maximum deduction limit of 80% by more than 10%P
Proposal to establish a new holding period bracket of 3-5 years for deduction eligibility also discussed
Some say "Adjusting the cap without changing the 종부세 imposition criteria will have little effect"

[Asia Economy Reporter Jang Sehee] It has been reported that following the election of Song Young-gil as the new leader of the Democratic Party of Korea, the party and government are considering expanding the comprehensive real estate tax (종합부동산세) tax credit. While Song supports the current regulations in principle regarding real estate taxation, he believes some adjustments are necessary, with a strong possibility that expanding the tax credit for the elderly will be part of the amendments. Options under review include increasing the current maximum tax credit limit of 80% or establishing a new holding period requirement (3 to 5 years) for eligibility.

◆ Party and government likely to revise real estate tax system this month... Increased tax credit limits for elderly and long-term holders = According to the Democratic Party and the government on the 3rd, the party and government plan to announce supplementary real estate policy measures, including these changes, as early as this month. A key Democratic Party official stated, "We plan to review the relevant regulations before June 1, the tax assessment date for property tax and comprehensive real estate tax."

The government also has no major objections. A government official said, "There is a certain consensus on easing the tax burden for those aged 60 and over with low income, such as pensioners who cannot cope with rising housing prices."

The reason the party and government are revisiting the comprehensive real estate tax reform is that the number of taxpayers subject to this tax is expected to increase significantly compared to last year. According to the Democratic Party, the number of individuals subject to the housing comprehensive real estate tax (excluding corporations) will reach 800,000 by the end of this year, up 150,000 from 650,000 last year.

The focus is on the elderly and long-term holders. Under the current comprehensive real estate tax law, those aged 70 or older who have held a home for more than 15 years can receive a tax credit of up to 80%. Although applying credits for age and holding period separately could total 90%, the legal maximum limit is capped at 80%. Song is considering raising the maximum tax credit limit by more than 10 percentage points. He previously stated, "While maintaining the tax assessment criteria for the comprehensive real estate tax, it is necessary to adjust the tax by increasing credits based on age and holding period."

Within the Democratic Party, a 100% increase is also being discussed, which would raise the credit rates for long-term holders or the elderly. The Ministry of Economy and Finance raised the combined credit limit for these two credits from 70% to 80% last year.

◆ Establishing new tax credit brackets? ... "Comprehensive real estate tax assessment criteria need revision" = There is also discussion about creating new brackets to expand the scope of tax credits. Song said, "The credit system is currently based on age and holding period, but it needs to be refined more precisely," adding, "If a new bracket for a 3 to 5 year holding period is created and credits adjusted accordingly, it could be effective." However, whether a holding period of '3 years or more' can be considered short-term requires policy judgment.

Currently, capital gains tax on short-term profits is heavily imposed: 70% for less than 1 year and 60% for less than 2 years. It is concerning to categorize all policies strictly as 'long-term' or 'short-term' when considering 3 years or more as long-term.

Additionally, there is consideration to raise the property tax exemption ceiling from the current 600 million KRW to 900 million KRW. Currently, a 0.05 percentage point reduction in property tax rate is applied for three years on homes with a publicly announced price of 600 million KRW or less owned by single-home households. The plan is to raise this threshold to 900 million KRW.

However, the market expects that if the comprehensive real estate tax assessment criteria remain unchanged and only the property tax ceiling and elderly/long-term holder credits are increased, the market reaction will be muted.

Professor Kwon Dae-jung of Myongji University’s Department of Real Estate said, "The comprehensive real estate tax assessment standard (currently 900 million KRW) has remained the same for 12 years, but housing prices have risen by at least 20%." He added, "Taxes are sharply increasing not only for multi-homeowners but also for ordinary residents and the elderly." He further stated, "The comprehensive real estate tax assessment standard should be raised to 1.2 billion KRW, and property tax relief should be provided for homes valued below 900 million KRW."

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