Seoul City Officially Proposes to Transition Team to Lower the Cap on Property Holding Tax

Proposal for Reforming Property Tax Rate System

Tax Credits for Primary Residence Homeowners and Retired Elderly

Comprehensive Real Estate Tax Considers Temporary Two-Homeowners Due to Inheritance as Single-Homeowners

Long-term Proposal to Integrate Comprehensive Real Estate Tax and Property Tax

[Asia Economy Reporter Kim Min-young] The Seoul Metropolitan Government officially proposed to the Presidential Transition Committee to adjust the upper limit rate on housing property tax burden from the current 130% to around 110-115%, and to raise the taxable value threshold to reduce tax burdens. It also conveyed the opinion that the comprehensive real estate tax, which has been distorted into a revenue-raising tool, should be integrated with the property tax in the future.

On the 20th, Seoul announced that it delivered a reform plan for the holding tax system prepared by a tax reform advisory group consisting of 10 external experts to the transition committee. The city launched the advisory group in February with the goal of easing the holding tax burden that citizens can feel, and completed this reform plan through four meetings. The purpose is to normalize the holding tax system to alleviate excessive tax burdens on primary residence homeowners and retired elderly without tax-paying capacity.

◆Lower the Upper Limit Rate on Property Tax and Comprehensive Real Estate Tax Burden=First, regarding property tax, the focus was on revising the current housing property tax rate system to reflect changed market conditions such as housing price increases and the realization of official property prices. Specifically, it proposed maintaining the current four-tier property tax rate system for housing but raising the highest tax rate application threshold from the current official property price of 500 million KRW to 900 million KRW.

Additionally, it suggested lowering the uniform upper limit rate on tax burden applied to the segment exceeding 600 million KRW in official property price from the existing 130% to 110% for the 600 million to 900 million KRW range, and 115% for the segment exceeding 900 million KRW. Currently, the upper limit rates on housing property tax burden are divided as 105% for official property prices up to 300 million KRW, 110% for 300 million to 600 million KRW, and 130% for over 600 million KRW. This standard has been maintained for 13 years since it was changed during the Lee Myung-bak administration in 2009.

Furthermore, it proposed granting up to a 30% reduction in property tax for primary residence homeowners and retired elderly, with a cap of 300,000 KRW, to prevent the regressive nature of tax relief where owners of high-priced homes receive disproportionately larger tax reductions.

The advisory group argued that in the long term, it is necessary to transfer the government's authority to adjust the fair market value ratio to local governments so that they can respond with customized measures based on local real estate market conditions and fiscal circumstances.

The advisory group also proposed measures to reduce the comprehensive real estate tax burden, such as easing the tax for single-homeowners and excluding non-apartment multi-homeowners, including rental business operators, from the comprehensive real estate tax aggregation. The amount of comprehensive real estate tax paid by Seoul homeowners surged about 12 times from 236.6 billion KRW in 2017 to 2.7766 trillion KRW in 2021 over five years.

The comprehensive real estate tax reform plan proposed lowering the current maximum 300% upper limit rate on housing comprehensive real estate tax burden to 150% to prevent excessive tax burden increases due to sharp rises in official property prices compared to the previous year. It also suggested that in cases of temporary two-homeownership due to inheritance, the taxpayer should be considered a single-homeowner, and that homeowners in rural farming and fishing areas should be eligible for single-homeowner benefits.

The reform plan also included excluding certain homes that meet specific conditions from the aggregation of home counts and applying general tax rates. Specifically, it recommended exempting long-term privately registered rental homes (excluding apartments) from the comprehensive real estate tax to contribute to stabilizing the rental market in the metropolitan area. It also included provisions to consider two-homeowners with shared ownership between spouses as single-homeowners to exclude them from heavy taxation. Under current law, if spouses each own 50% shares of two homes, they are classified as two-homeowners in regulated areas and subject to multi-homeowner heavy tax rates. Although the actual number of homes held by the household is two in both cases?whether each spouse owns one home individually or they share ownership of two homes?the tax burden differs.

It was proposed to exclude the aggregation of home counts for a certain period and apply general tax rates when a former single-homeowner suddenly becomes a multi-homeowner due to the cancellation of rental business status. According to Seoul, there are 298,000 privately registered rental homes, accounting for 15% of the rental market excluding owner-occupied homes. However, due to the abolition of private and short-term apartment rentals under the July 10, 2020 real estate measures, many rental business operators were forcibly deregistered, and unless they sell the rental homes, they are classified as multi-homeowners, causing a sharp increase in comprehensive real estate tax burden.

◆Comprehensive Real Estate Tax, Distorted into a Revenue-Raising Tool... Should Be Integrated with Property Tax=In the long term, the city proposed integrating the comprehensive real estate tax, which has effectively become a revenue-raising tool, with the property tax. Since the comprehensive real estate tax largely overlaps with the property tax in terms of taxable objects and is suitable as a local tax, unifying it under the property tax aligns with the normalization of holding taxes.

A representative of the tax reform advisory group pointed out, "The government excessively emphasized the policy function to stabilize the real estate market, strengthening tax rates on multi-homeowners and implementing a heavy tax system based on the number of homes. As a result, it acted as punitive taxation on corporations and multi-homeowners, yet Seoul's housing prices have more than doubled in recent years."

The advisory group designed the integration plan so that even if the comprehensive real estate tax is unified into the local property tax, the aggregated portion of the property tax (currently the comprehensive real estate tax portion) will be distributed to basic local governments nationwide, maintaining the current distribution criteria. Specifically, it recommended extracting only the wealth tax function and regional balanced development function to create a new aggregated property tax portion (housing and land portions). The aggregated property tax portion would be designated as a concurrent tax item of the property tax and a purpose tax for balanced development funds, maintaining the current land tax rate to secure the tax base. For the housing portion, it proposed applying a single tax rate based on the nationwide aggregated official housing price value after deducting a certain amount, instead of the current progressive and heavy tax rate system based on the number of homes.

Seoul Mayor Oh Se-hoon said, "Tax reform to alleviate excessive tax burdens is absolutely necessary," and added, "Since the transition committee has also announced plans to launch a separate ‘Real Estate Tax TF’ after the new government takes office to reform real estate taxes according to tax principles, I hope the tax reform plan prepared by Seoul can serve as a catalyst for normalizing the holding tax system."

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