Small-sized Homes Excluded from Heavy Levy for Multiple Home Ownership

In metropolitan areas including Seoul and other major urban cities, those who own three or more homes and are levied with heavy transfer income taxes, a “multiple home owner of three or more homes in one household” will be applied to the general tax rates of small-sized homes (tax standard value of 40 million won, 18 pyong or under) acquired before the end of last year.

The Finance-Economy Ministry (MOFE) announced yesterday that the revised bill for income tax law enforcement regulations with the above-mentioned details will be presented within the month and, upon passing the Cabinet Council, will be carried out in May.

According to the revised bill, for qualification as a small-sized home excluded from the heavy transfer income tax levied to multiple home owners, the home must have been purchased before December 31 of last year, and the National Tax Service’s tax standard value must be under 40 million won.

Living space of apartments, town houses, and multi-family houses is limited to 18 pyong or less, and detached homes must have a lot of 36 pyong or less and a floor space 18 pyong or less.

Kwon Hyuk-sae, Director General of Property, Consumption & International Tax Affairs of MOFE, said, “If even one of the requirements for purchase time, price, or area is not met, the heavy tax rate (60 percent) for transfer income tax will be applied. If all the requirements are met, and he or she is a multiple home owner, he or she can pay the transfer income tax by the general tax rate from the possessed period of time.” The transfer income tax rate added onto the capital gain differs by the possessed period of time which is 50 percent for less than a year, 40 percent for two years or less, and nine to thirty-six percent for two or more years.

Even if a house meets the requirements for a small-sized house, if it is in a redevelopment or reconstruction area which shows possibility for speculation, the house is not excluded from the heavy levy. Therefore, when multiple home owners with small-sized homes in these areas decide to sell, regardless of the possessed period, they will have to pay 60 percent of the capital gain to transfer income tax.

In the six metropolitan cities including the Seoul metropolitan area, Busan, Daegu and Inchon, where the heavy transfer income tax levy to multiple home owners is currently conducted, it is estimated that 12.8 percent of the total number of houses (6,911,000), some 885,000 houses are small-sized homes. By regional area, Kyeonggi has the most with 183,000 houses. Following are: Inchon with 160,000, Seoul with 124,000, Busan with 114,000 and Kwangju with 112,000 houses.

Lee Jong-kyu, Director of the Tax and Customs Office of MOFE, said, “This measure takes into consideration the fact that those with multifamily or detached homes, which are comparatively inexpensive to apartments, are going through difficulties due to the heavy levy. The heavy levy will be applied to small-sized homes sold after the effective date of revised enforcement regulations.”

Jin-Hup Song jinhup@donga.com