Special Tax Exemption about to be Abolished

A policy will be promoted which will stipulate that, in the future, those who own more than three houses will be imposed a maximum 82.5 percent tax rate for capital gains generated from housing transactions. Moreover, special exemption will not be available to even those who have owned houses for a long time. As stated by the Ministry of Finance and Economy on November 9, 12 assemblymen, including Kang Bong kyun (Uri Party), submitted to the National Assembly on November 7 a revised bill of income, corporation and exceptional taxation regulations – whose keynotes consists of the above-mentioned policy, in order to prevent real estate speculation.

According to the revised bill, those who have owned a house for more than three years can sell it and receive tax exemption of 10-30 percent of the capital gains (special exemption for long-time property holder) from the standards of assessment; however, starting next year, owners of more than three houses will not be able to receive such benefits.

But, for those who currently own more than three houses, they can still sell their houses by the end of next year and still receive the special exemption.

The elastic tax rate for capital gains (15 percent) will be preferentially applied to those who own more than two houses and have homes in speculation zones, such as Gangnam and Seoul, where capital gains tax is imposed at real transaction prices.

The elastic tax rate has been codified in the current income tax system, and as for this revised bill, it is specified to impose the elastic taxation first to those who own more than two houses, including homes in speculation areas. That is, owners of more than two houses in non-speculation areas will be excluded from preferential application of the policy.

The revised bill also imposes capital gains tax on housing transactions of individuals who are registered as housing transaction businessmen, who have been, until now, under the comprehensive income tax rate of 9 to 36 percent.

With this, as for capital gains generated from housing transactions of corporation, 30 percent of corporation tax will be imposed, additional to general corporation tax (5 to 27 percent).

Ki-Jeong Ko koh@donga.com