[Taemin Ryu's Real Estate A to Z] Urban Public Complex Development Project, Multi-family Property Owners Face Capital Gains Tax Bomb?

Proposed Amendment to Relevant Law... Not Subject to Capital Gains Tax Even if Ownership is Transferred
Capital Gains Tax Imposed from the Time of Apartment Sale After Development Completion

[Asia Economy Reporter Ryu Tae-min] Mr. A, who owns a multi-family house with six units in Geumcheon-gu, Seoul, built over 30 years ago, found out that he has to pay about 800 million KRW in capital gains tax when selling the building. Although multi-family houses with three floors or less are classified as single-family houses under the Building Act, the rooftop room built a few years ago made the number of floors four, so under tax law, it is considered a "multi-unit house," and he is regarded as a multi-homeowner. This is because there is a regulation that if the rooftop room's area exceeds one-eighth of the total building area, it is included in the floor count. Furthermore, since this area was recently included as a candidate site for the government's urban public housing complex project, Mr. A is worried about facing a tax bomb during the process of receiving an apartment allocation after the project.

With various taxes on multi-homeowners, from acquisition and registration tax to capital gains tax and holding tax, being heavily imposed, owners of multi-family houses in candidate areas for urban public complex development projects are increasingly concerned. This is because many housing types in the project candidate sites are multi-family houses, and there is concern that adding rooftop rooms might classify them as multi-homeowners under tax law.

However, contrary to concerns, buildings within the urban public housing complex project candidate sites are expected not to be subject to capital gains tax even if ownership is transferred to public implementers such as the Korea Land and Housing Corporation (LH) during the project process. This is because the transfer is conducted by transferring the house to LH, deferring the capital gains tax to a later time. Therefore, even if multiple houses are currently owned in the candidate site, capital gains tax surcharges do not apply.

According to the Ministry of Land, Infrastructure and Transport, the ministry plans to propose amendments to the Public Housing Special Act and the Local Tax Special Cases Restriction Act this month, including tax reform measures related to urban public housing complex project candidate sites. The amendment is expected to include provisions that treat land contributed in kind as land readjustment, deferring capital gains tax, similarly to private redevelopment. The Local Tax Special Cases Restriction Act will also include provisions to reduce acquisition tax on apartments provided as compensation for in-kind contributions.

However, capital gains tax will be imposed again from the point of selling apartments owned after the development is completed. In particular, if the area of the land contributed in kind is large and more than two apartments are received later, it may be subject to capital gains tax surcharges, so it is advisable to carefully decide the number of compensation houses.

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