Preventing Inheritance-triggered Comprehensive Real Estate Tax Bomb... Inherited Houses Excluded from Housing Count for Up to 3 Years

Capital Region, Special Self-Governing Cities, and Metropolitan Cities Excluded for 2 Years... Included in Tax Base
"Housing Unexpectedly Held... Excluded from Housing Count for a Certain Period"

Kim Tae-ju, Director of the Tax Policy Bureau at the Ministry of Economy and Finance, is announcing the key points at the '2021 Tax Law Amendment Follow-up Enforcement Decree Revision Briefing' held at the Government Sejong Complex on the 4th.

[Sejong=Asia Economy Reporter Kim Hyunjung] The government has decided to exclude inherited houses from the comprehensive real estate tax housing count for up to three years to prevent cases where tax burdens increase sharply due to unexpected inheritance. However, considering concerns about 'tax cuts for the wealthy' and fairness, the price of inherited houses will be included in the tax base so that part of the tax burden is borne.

On the 6th, the Ministry of Economy and Finance announced the "2021 Tax Law Amendment Follow-up Enforcement Decree Amendment."

Until now, inherited houses were excluded from the housing count only if they were jointly inherited houses with a share ratio of 20% and a publicly announced price of 300 million KRW or less, and there were no special provisions for solely inherited houses. However, with this enforcement decree amendment, the current share ratio and value requirements will be completely abolished, and both jointly and solely inherited houses will be excluded from the housing count for two or three years. Considering that real estate transactions are relatively easier in the Capital Region, Special Self-Governing Cities (excluding eup/myeon areas), and Metropolitan Cities, the exclusion period is two years, while in other regions it is up to three years. However, for tax fairness, these houses will be included in the tax base.

Under the current comprehensive real estate tax law system, sudden inheritance of part of a house's share due to a parent's unexpected death or sole inheritance can cause a sharp increase in tax burden for multi-homeowners. The tax threshold for a single household with one house is 1.1 billion KRW based on the publicly announced price, but for multi-homeowners, it is lowered to 600 million KRW. Moreover, the tax rate for one-house owners is 0.6?3.0%, whereas for two or more houses in regulated areas, the tax rate ranges from 1.2% to 6.0%.

For example, a single household owner who currently owns a house worth 1 billion KRW in a regulated area and is not subject to the comprehensive real estate tax inherits a 30% share (worth 180 million KRW) of a house priced at 600 million KRW in the same regulated area (excluding tax burden caps). According to current laws and enforcement decrees, they must pay 8.25 million KRW in comprehensive real estate tax. If they inherit the same house solely (100%), the tax jumps to 18.33 million KRW. However, with the government's recent enforcement decree amendment, the comprehensive real estate tax in each case will be reduced to 3.41 million KRW and 8.49 million KRW, respectively.

Regarding this amendment, Kim Taeju, Director of the Tax Policy Division at the Ministry of Economy and Finance, explained, "Inherited houses are held unexpectedly without the owner's intention. Considering the inheritance tax filing deadline (six months from the end of the month in which the inheritance occurs), inheritance procedures, and the time required to dispose of the house, a minimum necessary period of two years was granted." He added, "For the Capital Region and other areas, an additional grace period (+1 year) was granted considering that it may take more time to dispose of the house."

Kim Tae-ju, Director of the Tax Policy Bureau at the Ministry of Economy and Finance, is announcing the key points at the '2021 Tax Law Amendment Follow-up Enforcement Decree Revision Briefing' held at the Government Sejong Complex on the 4th. From the left are Lee Yong-ju, Head of the Income Information Promotion Division at the Ministry of Economy and Finance; Park Geum-cheol, Director of Property and Consumption Tax Policy; Go Gwang-hyo, Director of General Tax Policy; Kim Tae-ju, Director of the Tax Policy Bureau; Jeong Jeong-hoon, Director of Income and Corporate Tax Policy; and Kim Jae-shin, Director of Customs Policy.

However, the government has not estimated the tax revenue effect of this amendment to the comprehensive real estate tax enforcement decree. Regarding this, Director Kim only responded, "Inheritance occurs in unpredictable situations, so it is difficult to estimate in advance."

During the preparation of this amendment, the government decided to expand the scope of rental housing eligible for capital gains tax holding and residence period exceptions from the current public construction rental housing and private construction rental housing to include public purchase rental housing.

Additionally, to ease tax burdens on houses not intended for speculation, the government newly added social enterprises, social cooperatives, and Jongjung (clan associations) to the list of corporations subject to general progressive tax rates, which previously included public housing operators, public interest corporations, housing cooperatives, reconstruction and redevelopment operators, and private construction rental operators.

The exclusion targets for comprehensive real estate tax aggregation were also expanded by the amendment to the enforcement decree, including houses scheduled for demolition by housing construction operators, city/province registered cultural assets, and houses used for daycare centers. However, houses scheduled for demolition that are not demolished within three years of acquisition without justifiable reasons are excluded.

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