Market keen on Yoon’s pledge to ease capital gains tax

SEJONG -- A key issue in the real estate market this year is whether the coming Yoon Suk-yeol administration will follow up on his promise to grant a reprieve for a capital gains tax surchargers on owners of multiple homes in Seoul.

President-elect Yoon had pledged to delay the application of extra taxation on owners of multiple homes for up to two years. His pledge came amid criticism that multiple homeowners had declined to sell their properties due to the high rate of capital gains tax.

In August 2017, the Moon Jae-in administration unveiled a real estate measure in which the capital gains tax on the sale of a home is 10 percentage points higher for owners of two homes in Seoul and some major cities.

Owners of three homes or more had faced 20 percentage point higher rate of taxation under the measure.

In July 2020, the additional capital gains tax was increased to 20 percentage points for owners of two homes and 30 percentage points for owners of three homes or more.

Given the basic taxation rates between 6 and 45 percent, owners of three homes or more face capital gains tax of up to 75 percent.

A local tax of 10 percent is added on, so multiple-home owners could face a tax rate of up to 82.5 percent when this is factored in.

In this situation, more and more owners of multiple homes were found to have selected transfers of properties to their children in recent years, scrapping sale plans in the market.

And some of them declined to sell their apartments and have waited for revised policies of the next administration, despite the heavy burden of comprehensive real estate taxes.

Yoon had signaled a full-fledged overhaul of the heavy taxation system on multiple-home owners, if elected, after giving them a grace period for application of the heavy taxes.

The Yoon administration, which is scheduled to take office on May 10, is expected to choose one of the two options.

The postponement or abolishment of heavy taxation on owners of multiple homes, when selling properties, should go through a revision of the income tax law. In this case, the coming ruling Yoon government should face hurdles in passing the law as the coming opposition Democratic Party of Korea is holding the majority of parliamentary seats.

Nevertheless, there is a possibility that the Democratic Party will choose to cooperate with the move. Its presidential candidate Lee Jae-myung and some other lawmakers have also proposed easing the capital gains tax burden.

But real estate agents say that changes could be made through the revision of enforcement ordinances -- not revision of the law - which do not require Assembly approval.

The Moon administration also conducted an enforcement ordinance in December 2019, under which the tax authority offered an exemption from the heavy tax for a certain period to owners of multiple homes who sold a house as long as they had owned it for at least 10 years.

By Kim Yon-se (kys@heraldcorp.com)