Owners of farmland who do not farm without justifiable reason or who illegally lease it must pay an enforcement penalty equal to 25% of the land price every year if they receive a government disposal order but still do not sell. This is because the government has made farmland disposal orders, previously left to the discretion of local governments, mandatory, and allows the Minister of Agriculture, Food and Rural Affairs or mayors and provincial governors to issue orders directly if local governments do not act.
If, as proposed by the government, from 2028 the special long-term holding deduction for non-business land is abolished and the top capital gains tax rate rises to 65%, the move to dispose of farmland is expected to accelerate. Analysts note that with fewer people willing to buy farmland due to the rural population decline, a sudden increase in listings could put downward pressure on farmland prices outside the greater Seoul area rather than reviving transactions.
◇ If you don't sell farmland, a 25% yearly charge on the land price
According to the National Assembly and the Ministry of Agriculture, Food and Rural Affairs on the 8th, the amended Farmland Act, promulgated on Jun. 16 and in effect since Aug. 28, changed farmland disposal orders from a discretionary rule to a mandatory one. Previously, the heads of cities, counties, and districts "could order" disposal, but the amended law stipulates they "must order" it.
A disposal order is not issued simply because an out-of-towner owns farmland. The farmland utilization survey must confirm facts such as that the owner did not use the farmland for agricultural management without justifiable reason. Cases such as lawfully leasing to the Farmland Bank or being unable to farm due to unavoidable reasons like illness are not uniformly subject to disposal.
In principle, once a farmland owner receives notice of the disposal obligation, the owner must dispose of the farmland within one year. If it is still not sold during this period, a disposal order is issued, and the owner must sell within six months thereafter.
If the disposal order is not carried out, an enforcement penalty equal to 25% of the higher of the appraised value or the individually announced land price may be imposed each year. By a simple calculation assuming the farmland value does not change, the enforcement penalty over four years equals the land price.
If a local government does not issue a disposal order, the Minister of Agriculture, Food and Rural Affairs or a mayor or provincial governor can instruct it or issue the order directly. If the enforcement penalty is not paid, assets may be seized and sold under the national tax compulsory collection or local government tax delinquent disposition procedures.
Since May, the government has been conducting a full survey of 1.36 million hectares of farmland nationwide acquired since 1996. By the end of Jul., a survey of 1.32 million hectares, 10.13 million parcels, found that 2.84 million parcels, or 27%, were classified as suspected violations such as illegal leasing, unauthorized fallowing, or illegal conversion. Actual violations will be finalized after in-depth, on-site investigations.
Professor So Seong-gyu of Daejin University's Department of Public Human Resource Law said, "The intent to curb speculation is valid, but the realities of areas with declining populations where there are not enough people to farm must also be considered," adding, "Even if listings increase, if there is no demand, farmland transactions may shrink and prices may fall."
◇ Plan to toughen capital gains tax on non-business land from 2028
The government also decided to toughen taxes imposed when selling farmland that is not directly cultivated. The tax reform plan released in Aug. includes eliminating the special long-term holding deduction for non-business land held by individuals and raising the additional rate for capital gains tax.
For farmland to be recognized as business land under the tax code, in principle, the owner must reside in the same city, county, or district as the farmland or an adjacent area, or within a straight-line distance of 30 kilometers from the farmland, and personally cultivate it. Farmland that does not meet this on-site residence and self-cultivation requirement may be classified as non-business land.
According to the government plan, the capital gains tax rate on non-business land will rise from the current "basic rate of 6%–45% plus 10 percentage points" to "the basic rate plus 20 percentage points." The top rate will be 65%. The currently applied special long-term holding deduction will also be excluded. If the amendment to the Income Tax Act passes the National Assembly, it will apply to transfers on or after Jan. 1, 2028.
Park Hap-su, adjunct professor at Konkuk University's Graduate School of Real Estate, said, "Owners who acquire farmland through inheritance or gift and do not personally cultivate it could face a heavier burden on top of disposal orders and enforcement penalties," adding, "There is a possibility that demand to dispose of farmland will increase by the end of next year, before the tax reform takes effect."
◇ Rice paddy transactions down 35% in six years… not enough demand to absorb listings
The problem is that even if farmland comes on the market, there are not many buyers. Those seeking to acquire farmland must obtain a farmland acquisition qualification certificate, and in principle corporations are restricted to entities such as agricultural corporations as eligible acquirers. Due to rural aging and population decline, demand from those who actually plan to farm is also decreasing.
According to the Korea Real Estate Board (REB), last year there were 111,745 sales of rice paddies nationwide excluding Seoul, down 35.3% from 172,877 in 2019.
Kang Byung-ju, head of the Uiseong chapter of the Korea Association of Realtors(KAR), said, "Most people farming in Uiseong are in their 70s and 80s, and many entrust the work to others because health problems prevent them from farming directly," adding, "If disposal orders do not distinguish between speculative purposes and unavoidable fallowing due to old age or illness, confusion in rural areas could grow."