Gains tax on homes may be revised

The government is studying ways to avoid imposing transfer income tax when house sellers buy more expensive homes.

The Ministry of Construction and Transportation reported August 17 that it had worked out such a plan in order to tackle the difficulties faced by construction businesses and that the ministry was discussing the idea with the Ministry of Finance and Economy and other relevant ministries.

The projected tax system calls for postponement of taxation against transfer income from the sale of a house or other assets if the whole amount of money earned from the sale is used to buy another property.

Currently, profits from the sale of property are subject to 20% to 75% capital gains tax, regardless of whether a replacement home is purchased. If someone buys a house at 100 million won and sells it at 150 million won, the seller must pay 15 million won in tax, which is 30% of the 50 million won in capital gain. However, the tax is exempted when the owner of a single house has owned the home for more than three years.

If the new tax system is introduced, however, the transfer income tax will be exempted if a person buys a more expensive house than the previous one. If he or she buys a house that is less expensive, then the taxpayer will have to pay the transfer income tax. If someone sells a house that he or she purchased under the tax-exemption arrangement and spends the money for other purposes, that person will have to pay the transfer income tax, which had been postponed. So the new system is designed to encourage continuous investment in housing with the fund earned from the sale of homes.

The Ministry of Finance and Economy, however, reportedly is opposed to the plan because the government would be required to keep individual house sales data for a certain period of time and because it violates the principle of equity with those who are forced to sell their houses and unable to replace them because of personal financial failure or illness.