With the June 3 local elections over, discussions on the government's real estate tax overhaul are expected to pick up speed. In line with the principle of taxation centered on actual occupancy, revisions to the long-term holding special deduction (LTSD) for capital gains tax and measures to strengthen property holding taxes are under review. The market is on alert over the possibility of higher tax burdens targeting non-resident single-dwelling owners and holders of ultra-high-priced dwellings.
According to the government and the tax industry on the 5th, the Ministry of Economy and Finance is expected to receive an interim report this month or next month on the "real estate tax rationalization plan" research project, which runs through November. A government official said, "We plan to review the results of the research project before drawing up tax law amendments," adding, "A specific timetable has not yet been finalized."
The research project is said to include streamlining the capital gains tax LTSD, overhauling holding taxes such as property tax and the comprehensive real estate tax, and measures to toughen taxation on ultra-high-priced dwellings and non-resident single-dwelling owners. Inside and outside the government, there is speculation that the likely direction is to strengthen a tax system centered on actual occupancy.
The first measure on the table is revising the LTSD. Under the current system, when a one-household, one-dwelling owner sells a dwelling exceeding 1.2 billion won, up to 80% of the capital gain is deducted depending on the holding and occupancy period. However, going forward, there is a strong possibility the system will shift to granting deductions based more on the actual period of occupancy than on the simple holding period.
Related bills have already been introduced in the National Assembly. Pending proposals include eliminating the LTSD benefit and instead granting each individual a lifetime capital gains tax reduction capped at 200 million won, and abolishing the holding-period deduction rate and allowing deductions of up to 80% based on the actual period of occupancy.
The possibility of strengthening holding taxes is also being raised. The market expects the government to first move to adjust the publicly announced price realization rate and the fair market value ratio, which can be changed by revising enforcement decrees rather than by raising tax rates. If the fair market value ratio rises, the tax base increases, thereby boosting the burden of property tax and the comprehensive real estate tax.
There is also talk of scaling back tax benefits for registered rental business operators. The government recently said it is reviewing the appropriateness of excluding heavy capital gains taxation for purchase-and-lease dwelling operators within regulated areas. As a result, there is speculation that tax rules related to registered rental business operators could also be subject to adjustments.
The market is also watching for possible changes. A person in the tax industry said, "Recently, consultations on holding taxes from single-dwelling owners other than multiple-dwelling owners have been increasing," adding, "In Seoul, publicly announced prices have already risen, significantly increasing tax burdens, and if there is an additional overhaul this time, many people clearly feel the taxes will be burdensome."
Experts note that the tax overhaul should carefully consider its impact on the lease market and the supply of dwellings. Seo Jin-hyung, a professor in the real estate law and administration department at Kwangwoon University, said, "As the government places top priority on stabilizing home prices, there is a high likelihood of stronger taxation on high-priced dwelling holders and multiple-dwelling owners," while adding, "Because the tax burden can be shifted to tenants or the market, a finely tuned design is needed to minimize shocks."