Arya News - The government considers shifting tax relief from home count toward actual residence, total housing wealth.
SEOUL – Should someone who owns one ultra-expensive Seoul apartment receive more tax protection than a person with several modest homes in regional cities? And does owning only one property necessarily make it a home rather than an investment?
Those questions are at the heart of what could become the biggest rethink of South Korea’s property tax system in years. Long centered on the distinction between single-home and multiple-home owners, the system is now being reassessed around a different set of criteria: whether owners actually live in their homes, how much their properties are worth and where the tax burden should fall.
President Lee Jae Myung set off the debate in a July 10 post on X, questioning whether tax relief should depend less on the number of homes a person owns and more on actual occupancy and property value. He also considered whether Korea should rely more on holding taxes and less on transaction taxes.
The government is now reviewing possible changes to holding taxes and capital-gains deductions, including who should qualify for single-home tax relief, whether taxes should be based on home count or total housing wealth, and how the burden should be divided between ownership and transactions.
Who deserves single-home protection?
Korea provides substantial relief to one-household, single-home owners. For the comprehensive real estate holding tax, they can deduct 1.2 billion won ($811,000) from assessed value and receive additional holding-period and age credits.
But ownership, long-term holding and actual residence are not necessarily the same. Some owners rent out their sole home as an investment, while others cannot occupy it because of work or existing leases.
“The current system essentially uses single-home ownership as a proxy for distinguishing residential homes from investment properties,” Oh Jong-hyun, a senior research fellow at the Korea Institute of Public Finance, said at a government-hosted tax forum Thursday.
Ham Young-jin, head of Woori Bank’s Real Estate Research Lab, said one option would be to replace the holding-period credit with a residence-based credit.
Under the current system, single-home owners receive a credit of 20 to 50 percent after holding a home for at least five years and another 20 to 40 percent if they are aged 60 or older, subject to the combined 80 percent cap. Neither credit requires actual residence.
“Such a change could concentrate the tax benefit on people who actually live in their homes,” she said.
When one home is too much
Property value raises a separate question.
Transactions involving apartments worth at least 3 billion won in the Seoul metropolitan area topped 3,200 over the past year, up from 484 three years earlier.
At a Cabinet meeting last week, Lee asked whether someone living in a 10 billion won home should receive the same relief as an ordinary single-home owner. His question strengthened calls to rely less on home count and more on total housing wealth.
Although the comprehensive holding tax already reflects property value, deductions and rates still vary by the number of homes owned. Owners with similar housing wealth can therefore face sharply different bills depending on whether it is concentrated in one home or spread across several.
Ham said the rationale for placing a heavier burden on ultra-expensive single homes should first be made clear.
“Whether the aim is to bring more homes onto the market, improve tax equity or curb demand for a ‘one smart home’ will determine how the system should be designed,” she said.
Experts note that any reform would still need safeguards for elderly residents and exceptions for regional, inherited and rental properties — another delicate balance in shaping the final package.
Taxing ownership or transactions?
Another fault line is where the heavier tax burden should fall — on transactions or ownership.
Recurrent property taxes are generally seen as less disruptive because they fall on immovable assets, while acquisition and capital-gains taxes can discourage buying, selling and moving. When tied to property values, holding taxes can also better reflect housing wealth, while high transaction taxes can lock properties in place and restrict listings.
Korea’s system remains heavily tilted toward transactions. Property-related taxes equal 3 percent of GDP, compared with an average of 1.6 percent across the Organization for Economic Cooperation and Development. Transaction taxes account for 50.4 percent of Korea’s property-related tax revenue, while recurrent property taxes make up 29.4 percent, compared with about 56 percent across the OECD.
In July, the OECD recommended a revenue-neutral shift toward recurrent property taxes to improve residential mobility and labor-market efficiency while reducing housing-market distortions.
One target under discussion is the long-term capital-gains deduction for qualifying single-home owners, which allows up to 80 percent of taxable gains to be deducted based on holding and residence periods.
Ham said the holding-period portion could be reduced or shifted toward actual residence, while capital-gains tax surcharges on multiple-home owners should be lowered to ease the lock-in effect.
“Repeatedly offering temporary relief makes the transaction market more volatile and undermines predictability,” she said.
Ham proposed reducing the surcharge on multiple-home owners by 10 to 20 percentage points under a more stable, longer-term framework.
Any tax overhaul would still need to be paired with measures to address supply shortages, as taxes alone cannot remove the underlying pressure on prices.
The issues will be taken up in a broader public debate led by Lee on Thursday, with a tax package expected in late July or early August.
“A home is fundamentally a place to live,” Deputy Prime Minister and Finance Minister Koo Yun-cheol said at the forum last week. “While homes used as primary residences should be supported, the question remains whether homes their owners do not live in should receive the same support.”