After CGT Hike, Holding Tax Increase Looms... More Complex Calculations for the Housing Market [Real Wealth Strategies]

CGT Surtax Reinstated on May 9 for the First Time in Four Years
CGT for Two-Homeowners More Than Doubles
Property Holding Taxes—Property and Comprehensive Real Estate Taxes—Repeatedly Emphasized
If You Decide to Hold, Consider the Details... All Eyes on Methods and Scale of Increases
Long-term Holding Special Deduction Expected to Be Reduced

"Through strong financial, tax, and regulatory measures, we will create a situation where, even after May 9, it will be more beneficial for multi-homeowners to sell their properties despite facing higher capital gains taxes." "Buying and selling homes is a matter of personal freedom, but whether it results in a profit or a loss is determined by the government." (President Lee Jaemyung via X, formerly Twitter)

The direction of President Lee's real estate policy, promoted under the banner of "normalizing the abnormal," is clear. Except for the fact that the increased capital gains tax (CGT) for multi-homeowners will be reinstated on May 9 for the first time in four years, no specific methods or formulas have been announced yet. However, based on the issues he has raised on social media or at official meetings such as the Cabinet meeting, as well as orders given to his cabinet, it is evident that the government intends to tighten lending and increase property holding tax burdens.

In particular, he has repeatedly emphasized the cost of holding onto properties—namely, property taxes and comprehensive real estate holding taxes. The reference date for calculating holding taxes is June 1 each year, and under this administration, the tax will be imposed five more times. For multi-homeowners or owners of high-value properties, the calculations will inevitably become more complicated.

A notice regarding capital gains tax for multi-homeowners is posted at a real estate agency in Gangnam-gu, Seoul. Photo by Yonhap News

Double CGT for Two-Homeowners After Surtax Reinstatement

With the reinstatement of the capital gains tax surtax for multi-homeowners, which had been postponed every year under the Yoon Suk-yeol administration, from this year, those who own two homes within the 12 designated areas in Seoul and Gyeonggi Province will face a tax rate of up to 71.5%. This is calculated by adding a 22 percentage point surcharge to the base tax rate of 6.6% to 49.5%. For those with three homes, a 33 percentage point surcharge is applied, resulting in a maximum tax rate of 82.5%. To avoid the increased rate, contracts must be signed by May 9, and the balance payment or registration must be completed within four to six months. For properties with tenants, a temporary two-year grace period for occupancy has been granted.

The tax burden differs significantly before and after the surtax reinstatement. According to a simulation by Woo Byungtak, a specialist at Shinhan Premier Pathfinder, if a property is held for 10 years and the capital gain is 500 million won, the current tax is about 146.37 million won. For two-homeowners after May, the tax rises to 299.82 million won—more than double. For three-homeowners, the tax increases to 354.54 million won under the new policy.

The larger the gain, the greater the tax burden. If a two-homeowner who has held properties for 10 years realizes a 1 billion won gain, the current tax is about 323.91 million won; after the surtax, it will jump to 640.76 million won. With a 2 billion won gain under the same circumstances, the tax rises from 718.23 million won to 1.35568 billion won. Once the CGT surtax is applied to multi-homeowners after May 10, the long-term holding special deduction will also be eliminated.

Holding Costs Have Already Risen—And Will Only Go Higher

If homeowners decide to hold on to their properties to avoid the sharply increased CGT, they must consider the holding tax. While the government has outlined a plan to overhaul the entire tax system, including holding taxes, the details have not yet been disclosed. The basic structure of the holding tax is progressive based on property value, and the tax rate itself is relatively high. However, there are numerous deduction benefits, and it has been consistently pointed out that the effective tax rate is lower than in advanced countries.

There is growing support for increasing the effective rate to levels seen in developed countries, both for housing market stability and tax equity. In particular, President Lee has made it clear that the goal is to create a situation where, even after the CGT surtax increases the tax burden, it would be more advantageous to sell than to hold. The focus now is on how and by how much the government will raise the tax.

In some areas, such as Gangnam in Seoul, where home prices surged last year, the published property values have already risen significantly, resulting in a higher tax burden even without additional measures. For example, a single-homeowner with an 84-square-meter unit at Maporaemian Prugio in Mapo-gu, Seoul, who had no special deductions, paid about 3 million won in holding tax last year. This year, the tax will increase to 4.16 million won. The published value is expected to rise by about 32%, and the increase will reach the maximum allowed cap (up to 150% of the previous year) for the comprehensive real estate holding tax.

For Raemian Oksu Riverzen in Seongdong-gu, the tax will rise from 3.25 million won to 4.53 million won—again hitting the cap. With the published values rising sharply, even if property values remain at this level next year, the holding tax alone could still increase. The tax burden is even greater for high-value properties in Gangnam. For a similar-sized unit at Banpo Xi in Seocho-gu, the tax jumps from 12.75 million won last year to 17.9 million won this year, and for Jamsil Jugong 5-danji, from 8.67 million won to 12.59 million won.

Apartment complexes are densely packed throughout the city as seen from the Namsan Observatory in Seoul. Photo by Yonhap News Agency

Tax Burden Can Rise at Government Discretion, Even Without Law Amendments

Although taxes must be set by law, holding taxes such as the comprehensive real estate holding tax and property tax can be raised at the government's discretion. This can be done by increasing the published property value realization ratio or the fair market value ratio, which are used as buffers in tax calculations. This year, the realization ratio for apartments and other multi-family housing remains at 69%, the same as last year.

Although the previous Moon Jae-in administration specified in the law that the realization ratio should be gradually increased, the Yoon Suk-yeol administration maintained the existing level due to concerns about the tax burden. The fair market value ratio is used by multiplying a certain percentage to the published price, which becomes the tax base. The current ratio is 45% for property tax and 60% for the comprehensive real estate holding tax. This means taxes are being levied based on a value that is less than half of the actual market price.

For property tax, the tax base is determined by multiplying the sum of published property values by the fair market value ratio. For the comprehensive real estate holding tax, the published value minus 1.2 billion won (for single-homeowners) is multiplied by the fair market value ratio. The comprehensive real estate holding tax is highly progressive depending on the total value, so if the taxable amount rises by 20%, the tax burden could increase by even more. Furthermore, since President Lee regards non-resident single-homeownership as speculative, it is expected that benefits such as the long-term holding special deduction will be gradually reduced. In short, the cost of holding properties is set to rise substantially.

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