No heavy taxation for those who own two homes

As early as next year, everyone who holds two houses is not subject to a heavy tax rate of 1.2 to 6.0 percent but to a lower tax rate of 0.5 to 2.7 percent. Although the heavy tax rate will be applied for those who own more than three houses, the maximum tax cap will be reduced to 5 percent from 6 percent.

According to the National Assembly and the government on Monday, the ruling party and opposition parties have practically reached an agreement on the revision of the Comprehensive Real Estate Tax Act, even though they are at odds about next year’s budget to the extent to put off the issue until Thursday.

The two sides have tentatively agreed to abolish the heavy taxation for those who own two houses in overheated speculation zones and to impose general tax rates. The heavy tax rate will be applied for those who own more than three houses, but the maximum tax cap will be reduced to 5 percent from 6 percent.

Initially, the government submitted a revised bill abolishing the heavy taxation for all multiple homeowners to the National Assembly. However, the ruling party has decided to embrace the opposition parties' stance, which argued that the complete abolition of heavy taxation is near impossible. Therefore, the two sides have agreed to separate those with two homes and those with more than three homes, reducing the number of people subject to heavy taxation.

The two sides are pushing forward a plan to apply general tax rates for those with more than three houses if the combined price doesn’t exceed 1.2 billion won based on published prices. They are also discussing lowering the tax rates applied to houses with published prices between 1.2 billion won to 9.4 billion won. However, as they are still at odds with corporate tax and financial investment income tax, the comprehensive real estate holding tax decision could also take an opposite turn based on the result of their negotiation on the above-mentioned taxes.

The standard deduction for a single house owner will increase to 1.2 billion won from 1.1 billion won to 900 million won from 600 million won for multiple homeowners. Therefore, the standard deduction for a married couple who co-owns a home will jump to 1.8 billion won from 1.2 billion won. If this plan sets in stone, those who own two houses in overheated speculation zones will be the biggest beneficiary of the change as they will be subject to the general tax rates. Their standard deduction will increase to 900 million won.


Hye-Ryung Choi herstory@donga.com