Selling a 31-Year-Old House as 'Temporary 3-House Owner' Faces 800 Million Won Capital Gains Tax... Court Rules "Not Speculation, Unfair"

A court ruling has declared it unfair to apply the capital gains tax surcharge rate when a household temporarily becomes a 1-household 3-houses situation during the process of selling a house lived in for over 30 years and moving.

According to the legal community on the 12th, the Administrative Division 2 of the Seoul Administrative Court (Presiding Judge Shin Myung-hee) recently ruled in favor of the heirs of Mr. A in a lawsuit filed against the Mapo Tax Office head to cancel the capital gains tax imposition. The court also ordered the Mapo Tax Office to bear the litigation costs.

Mr. A had lived for 32 years since June 1985 in a two-story tiled roof house in Mapo-gu, Seoul. In March 2018, Mr. A’s spouse acquired an apartment in Gwangmyeong-si, Gyeonggi Province, registered it as a long-term rental housing (apartment), and held it. In the same month, Mr. A purchased a nearby apartment in Mapo-gu. One month later, Mr. A sold the tiled roof house for 2.24 billion KRW and moved into the previously purchased Mapo-gu apartment on the same day.

Regarding the transaction of the tiled roof house, Mr. A reported and paid capital gains tax of about 64.7 million KRW. However, the tax authorities excluded the 'long-term holding special deduction' and applied the surcharge rate (an additional 20% on the general tax rate), notifying him to correct and pay capital gains tax of 814 million KRW. The tax authorities judged that this corresponded to the sale of a house in a designated adjustment area where a single household owns three or more houses.

Mr. A filed an appeal with the Tax Tribunal but was dismissed in March 2022, and he passed away two months later.

The spouse and children, as Mr. A’s legal heirs, filed an administrative lawsuit following Mr. A’s appeal. During the trial, they argued that "the tiled roof house was a home lived in for over 30 years after acquisition," and "the proceeds from the sale were used to purchase a replacement house in Mapo-gu and a rental house in Gwangmyeong-si to support their old age livelihood, with no intention of speculation."

They also appealed, saying, "The period of being a 1-household 3-houses situation was only 23 days before receiving the payment balance for the sale of the tiled roof house, and even that occurred in the process of converting houses," and asked the court to consider the 'special circumstances' where they had no choice but to hold three houses formally without speculative intent.

The first trial court ruled in favor of the heirs, stating, "Although it is a sale corresponding to a 1-household 3-houses situation, special circumstances that prevent the imposition of a capital gains tax surcharge are recognized." This follows the 2014 Supreme Court precedent that "if the period between acquiring a newly purchased house and selling the previous house is socially recognized as temporary without speculative intent by the resident, the capital gains tax surcharge cannot be imposed."

The tax authorities argued, "To consider that there are special circumstances that prevent the imposition of a capital gains tax surcharge, there must be circumstances such as the order of house transfers being changed at the request of the contracting party or unavoidable constraints." However, the court rejected this, stating, "Restricting special circumstances to that extent excessively limits the people's 'freedom of residence relocation.'"

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