Kim Yong-beom, head of policy at the Presidential Office, signaled a sweeping overhaul of property taxation in July, saying "it is necessary to reasonably adjust holding taxes and capital gains taxes." Within the government, projections have emerged that the reform may go beyond micro-level adjustments such as the fair market value ratio to include a head-on approach, such as raising the top rate of the comprehensive real estate tax, a representative holding tax.
Kim made the remarks Friday on his Facebook page, writing, "Economic indicators are recovering thanks to the chip boom and the current account surplus, but this money could ultimately flow into real estate, so taxation must be normalized." This aligns with President Lee Jae-myung's comments at his one-year anniversary press conference on June 8, when he said, "Korea's holding taxes are generally low, and a holding burden at Western levels is needed."
As a result, the likelihood has grown that the tax revision bill to be announced in late July will contain a high-intensity reform that raises the holding tax burden and also restructures the capital gains tax around actual residence to increase the real burden. First, observers say the holding tax is likely to shift toward directly raising the comprehensive real estate tax rate. While the market had initially considered a plan to gradually raise the fair market value ratio (currently 60%), which serves as the basis for the holding tax base, as the leading option, the mood is now leaning toward a rate hike. A differentiated design is likely, maintaining or easing the burden on mid- to low-priced single homes for actual residence while raising the tax burden centered on ultra-high-priced and non-resident homes.
As for the capital gains tax, as initially expected, the bill is anticipated to include a plan to restructure the special long-term holding deduction system around actual residence. Deductions for non-resident single homes, homes held for investment purposes, and ultra-high-priced homes are expected to be reduced. A plan to subdivide tax base brackets to raise the capital gains tax burden the higher-priced the home is also under discussion.
However, a plan to temporarily exclude registered rental apartments from heavy capital gains taxation to induce listings is under review. Lim Kwang-hyun, commissioner of the National Tax Service, said Friday on X (formerly Twitter), "There are 68,000 apartments tied up as registered rentals," adding, "We must give registered-rental multi-home owners an opportunity to exit so that listings come onto the market."
Strengthening holding taxes targeting ultra-high-priced single-home owners... reviewing changes to comprehensive real estate tax brackets and rates
Tax pressure on multi-home owners who hold out... single-home owners who lease out their homes without reason also targeted
Adjusting the long-term holding deduction criteria toward actual residence... mulling expansion of comprehensive real estate tax surcharge on multi-home owners
Some point to "universal taxation instead of punitive taxation"
The core of this year's property tax reform can be seen as how the Presidential Office's stated goals of "strengthening holding taxes and restructuring capital gains taxes around actual residence" are concretely designed. Depending on how the comprehensive real estate tax, a representative holding tax, and the capital gains tax, which has the character of a transaction tax, are adjusted, the tax burden could change completely, from ultra-high-priced and multi-home owners to actual-residence single-home owners and non-resident single-home owners.
① Will the comprehensive real estate tax top rate be raised? = First, in the case of the comprehensive real estate tax, the tax base brackets for ultra-high-priced single homes are expected to become more granular than at present. It is, in effect, a "pinpoint tax increase" targeting high-priced homes. The comprehensive real estate tax applies rates of 0.5% to 2.7% across a total of seven brackets, from a tax base of 300 million won or below to over 9.4 billion won. Unlike the income tax, which has a progressive structure with a top rate of up to 45%, the comprehensive real estate tax has relatively few brackets and a low top rate, prompting criticism that the tax burden on high-priced assets is not sufficiently reflected. Kim Yong-beom, head of policy at the Presidential Office, has said, "We must consider a proposal to apply holding taxes differently by making brackets more granular, such as 2 billion, 3 billion, and 4 billion won, even for the same single home."
Accordingly, a plan to raise the top rate of the comprehensive real estate tax is being prominently discussed. The observation is that, since the property tax affecting all homeowners faces strong tax resistance, the emphasis will be placed on adjusting the comprehensive real estate tax, which has a relatively narrow target. For multi-home owners, the market is even discussing a plan to ease the threshold for the comprehensive real estate tax surcharge from the current level and expand it to two or more homes.
The problem is that punitive taxation targeting specific groups may lack sustainability. Hong Ki-yong, professor emeritus at the College of Business Administration at Incheon National University, pointed out, "There is no such thing as a pinpoint in taxation," adding, "It appears to be pinpoint taxation, but in reality it can be passed downward through rents or prices." Lee Jung-woo, professor emeritus at Kyungpook National University, who served as the first head of policy under the Roh Moo-hyun administration, also said, "We should not impose heavy taxes as if punishing only the holding of ultra-high-priced homes," and "universal taxation, in which everyone who owns a home pays taxes, is desirable."
② Holding tax hikes appear set to come faster = The pace of the comprehensive real estate tax hike is also a point of contention in this year's tax revision. The market had initially expected the government to gradually raise the fair market value ratio, currently at around 60%, over several years. Some analysts had suggested the government might reflect public opinion as expressed in the results of the June 3 local elections. However, after policy chief Kim directly mentioned that "the normalization of property taxation and a reasonable adjustment of holding taxes are needed," and President Lee Jae-myung repeatedly emphasized that "Korea's holding taxes are generally low and a burden at the level of advanced Western nations is needed," the mood is shifting toward a rate hike. Because directly touching the rate can raise the tax burden faster and more sharply than adjusting the fair market value ratio, the felt impact is expected to vary greatly depending on how the size of the hike and the tax base brackets are adjusted.
Park Hoon, professor of taxation at the University of Seoul, pointed out, "The property tax and the comprehensive real estate tax are structured to rise automatically as published prices increase, even without touching the current system," adding, "Taxes are already increasing, and if rates are raised on top of that, it would not be a sustainable holding tax but could become an unbearable burden for property owners."
③ Non-resident single-home requirements are a "hot potato" = The reduction of capital gains tax benefits for non-resident single-home owners has already become a foregone conclusion. The comprehensive real estate tax's special long-term holding deduction can also be received up to 50% by holding a home for five or more years without a residence requirement, and the possibility of changing this to a residence-based standard has also been raised.
The key is how to design the exception clauses for non-resident single homes. Because there are numerous unavoidable non-residence reasons in real life, such as job transfers, children's education, supporting parents, and long-term medical treatment, the advantages and disadvantages among taxpayers could diverge depending on what level is recognized as an exception equivalent to actual residence. Narrowing the scope of exceptions raises tax fairness but increases administrative burdens and the possibility of disputes, while widening it could dilute the purpose of actual-residence-centered taxation, requiring fine-tuned adjustment. Byun Chang-heum, professor of public administration at Sejong University, pointed out, "There are many people who had very exceptional circumstances that prevented them from living there," adding, "If consideration is not given to such cases, the capital gains tax becomes a political tax."
④ Will there be capital gains tax incentives too? = The direction of additional capital gains tax adjustments is also of interest. With the end of the exception to the heavy capital gains taxation on multi-home owners already confirmed, a plan to subdivide tax base brackets for high-priced homes to further raise the capital gains tax burden is also being discussed together. While it is common to lower transaction taxes to induce transactions when strengthening holding taxes, there is also a possibility of strengthening both capital gains and holding taxes on ultra-high-priced homes to block the inflow of new speculative demand. However, for registered-rental multi-home owners, an approach is also being discussed that would eliminate the permanent exemption from heavy capital gains taxation and temporarily lift the surcharge to grant an "exit" opportunity. The aim is to convert volumes that could not come onto the market due to tax benefits into listings, while in the long term cleaning up the structure that relies on various special exceptions. An alternative of inducing listings by cutting capital gains taxes for elderly owners who rely on a single apartment is also being discussed.
Hong said, "Property taxation should not hinder citizens even to the point of relocating their residences."
