Seoul accounts for only 0.6% of Korea's land but 43.3% of the nation's apartment market capitalization. That shows how severe the concentration of real estate in Seoul and the polarization in home prices are. Because of this, some argue that debates on holding taxes should be based on global metropolitan cities comparable to Seoul rather than national averages.
However, when comparing holding taxes between overseas megacities and Seoul, you cannot look at only the tax rate. New York pairs high property taxes with relief programs, and London adds a high-value home surcharge to the structure of local government tax paid by residents. Tokyo's nominal rates are high, but the deduction for residential land is large. To compare Seoul's holding taxes with those of global megacities, you need to examine not only the rates but also the tax base, relief programs, and whether the revenue accrues to local government finance.
Kim Yong-beom, the presidential chief of staff for policy, said in Mar. that "since real estate is an issue for Seoul, not all of Korea, we are studying holding taxes in metropolitan cities like Seoul." We compared the holding tax systems of Seoul, New York in the United States, London in the United Kingdom, and Tokyo in Japan.
◇ New York's high property taxes, with tight relief mechanisms
The United States is the most frequently cited case in arguments for strengthening real estate holding taxes. But in the U.S., rates and methods for calculating the tax base vary by state, county, and city. Even dwellings with the same price can face very different actual tax burdens depending on their location.
New York has one of the most complex property tax structures in the U.S. Although it varies by dwelling type and assessment method, the effective property tax burden for New York City dwellings is commonly cited at around 1%. A simple calculation applying a 1% rate to a 3 billion won dwelling would put the annual tax burden at about 30 million won. However, this is an example excluding reliefs and assessment methods. Detroit, one of the major U.S. cities with heavy property tax burdens, was found to have an effective rate exceeding 3% based on the median-priced dwelling.
New York also has a variety of relief programs. A representative one is the "School Tax Relief (STAR)" program. It reduces the burden of school taxes used to fund public school operations. Owner-occupiers of dwellings under a certain income threshold can receive relief, and people age 65 or older who meet the income criteria qualify for additional relief. There is also a program that reduces a portion of the assessed value for elderly dwelling owners.
There are also income tax deductions for property tax payments and mortgage loan interest. In the U.S., when filing federal income taxes, taxpayers can deduct, within limits, payments of local government tax such as property taxes. Mortgage loan interest for the purchase, construction, or improvement of a dwelling can also be deductible if requirements are met. In exchange for high property taxes, mechanisms operate to lower the burden for owner-occupiers, seniors, and borrowers.
◇ London's local government tax is paid by residents rather than owners
The United Kingdom has a local government tax called the council tax. It funds local public services such as trash collection, policing, fire services, and local administration. For that reason, the taxpayer in principle is the person living in the home. In many cases, tenants, not landlords, pay it.
In the U.K., local governments set council tax levels annually, so the tax differs by area. In England, which includes London, authorities assign eight bands from A to H based on dwelling values as of 1991 and collect a flat amount. In London, the average payment is known to be about 2 million to 5 million won, depending on the district. There are discounts as well. Single adults can receive a 25% reduction, and if all dwelling residents are students, they are exempt.
However, critics have long said the old valuation basis remains even when home prices rise significantly, benefiting high-value dwelling owners. In response, the U.K. government decided to impose a separate surcharge on high-value dwellings of 2 million pounds (about 4.1 billion won) or more in England starting Apr. 2028. This is the so-called "mansion tax," an additional council tax surcharge on high-value dwellings. Owners of dwellings priced at 2 million pounds or more will pay an additional 2,500 to 7,500 pounds per year depending on the price band. Unlike council tax, this surcharge is paid by the owner, not the resident.
◇ Tokyo's rates are high, but residential land gets large deductions
Japan imposes a fixed assets tax and a city planning tax as holding taxes. The standard rate for the fixed assets tax is 1.4%, and the city planning tax is up to 0.3%. On the surface, the rates are not low. However, the actual burden is reduced because of tax base deductions.
Japan applies special treatment to land for dwellings. For small residential lots of 200㎡ or less, the fixed assets tax base is reduced to one-sixth of the assessed value. The city planning tax base is also cut to one-third. General residential land over 200㎡ also receives deductions within certain limits. For buildings, depreciation reduces the tax burden over time. There is also a program that halves the building portion of the fixed assets tax for several years on newly built dwellings that meet certain conditions.
Japan's fixed assets tax funds local governments. The city planning tax is also used for roads, parks, and urban infrastructure. In New York and London as well, taxes with the nature of holding taxes are directly tied to funding local public services. It is a structure in which taxpayers can relatively clearly feel how their taxes are used.
In contrast, in Korea, the property tax is a local government tax, but the comprehensive real estate tax is a national tax. Property tax is collected by the local government where the real estate is located, while the comprehensive real estate tax is levied by the central government and then redistributed. As a result, it is harder to feel that holding taxes directly lead to improvements in local public services. This is why, in the debate over Seoul's holding taxes, there are calls to examine the tax base, reliefs, and revenue allocation structure as closely as the rates.