As the burden of holding taxes on high-priced dwellings grows, there is a clear trend of older owners with dwellings in Seoul's Gangnam area considering tax-saving measures such as sales and gifts. The government's real estate tax overhaul is expected to sharply increase the burden of holding taxes, and capital gains taxes are also expected to rise by as much as three to four times. In the real estate market, there is an outlook that, as the burden of holding high-priced dwellings increases, older long-term residents of Gangnam with large capital gains will consider gifting.
According to the real estate industry on the 8th, as the tax burden on high-priced dwellings is expected to increase significantly, more people in Gangnam are considering various ways to gift high-priced dwellings.
Typical methods include selling the dwellings and gifting cash, or gifting the dwellings directly without selling. A tax industry official said, "Since the tax overhaul was announced, we have been receiving tax-related inquiries, and more people are reviewing tax-saving measures from various angles, including the timing of sales and gifting."
In particular, these deliberations are expected to grow among older people who have held high-priced dwellings for a long time and have large capital gains. Nam Hyeok-woo of Woori Bank's Real Estate Research Institute said, "When gifting, from the donee's standpoint, the capital gains basis is reset, so there are cases where the transfer of wealth is possible while avoiding the increase in capital gains tax."
When the gifted asset is later sold again, the capital gains for the donee (the recipient) are calculated using the value at the time of the gift (the gifted property value) as the new acquisition price, and only the increase after that is taxed. If dwellings are gifted in advance to children, the acquisition price of the gifted dwellings is higher, so less capital gains tax is paid when the home is sold in the future.
Nam said, "However, as the burden of holding has increased significantly due to this tax overhaul, if the gift tax burden is heavy, there may also be cases where those who have maxed out the long-term residency income deduction limit sell their homes and gift cash to help their children buy a home."
◇ Gangnam's three districts see gifting movement among those 60 and older
According to the Court Registration Information Plaza, ahead of the tax overhaul, there were 1,827 applications for ownership transfer registration (gifts) in Seoul in July.
In particular, gift applications increased among those 60 and older in the three Gangnam districts (Gangnam, Seocho and Songpa). In the same month, the number of gifts by those 60 and older in the three districts was 464, accounting for 34.7% of the 1,339 gifts in the same age group across the 25 districts. That was a 32.2% increase from the same month a year earlier (351).
By district, Gangnam recorded 121 cases, up 23.5% from the same month a year earlier (98), and Seocho recorded 279 cases, up 56.7% from the same period last year (178). However, in Songpa, where ultra-high-priced apartments account for a relatively smaller share, the number of gifts was 64, down 14.7% from the same period a year earlier (75).
In the three Gangnam districts, demand for gifting among older people increased in April, before May 9, when the end of the capital gains tax surcharge deferral for multiple-home owners was announced, and this trend strengthened again in July. The number of gifts by those 60 and older in the three districts rose to 774 in April, then fell to 506 in May and 315 in June. It began to increase again in July ahead of the tax overhaul.
◇ The more dwellings and the higher the home price, the more favorable direct gifting is
ChosunBiz asked Park Dam, a tax accountant on the inheritance and gifting team of Hana Bank's Living Trust Consulting Department, to simulate taxes when gifting a high-priced dwelling. The results showed that the higher the dwelling price and the greater the number of dwellings owned, the more advantageous direct apartment gifting was compared with selling the apartment first and then gifting cash.
If a two-home owner who acquired an Apgujeong Hyundai apartment in Gangnam-gu, Seoul, for 2.15 billion won and has owned and lived in it for more than 10 years gifts this apartment, now worth 9.5 billion won, to an adult child, the combined burden of gift tax and acquisition tax was calculated at 5.41005 billion won.
If the dwelling is sold first, 3.96859 billion won in capital gains and local income taxes would be paid, and the remaining 5.53141 billion won would be gifted to the child. In this case, an additional 2.21228 billion won in gift tax would be incurred, bringing the total tax burden to 6.18087 billion won. Directly gifting the apartment is about 770 million won more favorable in terms of taxes.
For a one-home owner, the tax difference was small. If a Banpo Xi apartment in Seocho-gu, Seoul, valued at 5.1 billion won is gifted to a child while in a one-household, one-dwelling status (10 years of ownership and residency), direct gifting of the dwelling results in a combined 2.20705 billion won in gift and acquisition taxes. If the apartment is sold first and 444.21 million won in capital gains tax is paid and the remaining funds are gifted, the total tax burden including the cash gift tax is calculated at 2.23182 billion won. Directly gifting the dwelling saves about 24.77 million won in taxes.