By Lee Hyo-sik
Staff Reporter
Owners of high-priced homes, particularly in affluent southern Seoul, will see their property-holding tax burden fall by up to 50 percent in 2009 from this year, following the passage of the revised comprehensive real estate bill at the National Assembly. Additionally, those who hold multiple homes will pay less in capital gains taxes when selling their units as part of efforts to encourage people to purchase more homes and boost demand amid falling prices over the past two years.
Governing and opposition party lawmakers belonging to the Assembly's strategy and finance subcommittee Friday agreed to keep the threshold for the all-inclusive real estate tax at 600 million won but provide a 300 million won per-capita exemption, raising the ceiling to 900 million won in substance, which was sought by the governing Grand National Party (GNP) for months.
They also decided to cut the progressive tax rate of between 1 and 3 percent to 0.5 and 2 percent to reduce the property tax burden on homeowners amid falling prices.
The change will provide a tax deduction of up to 40 percent to people aged over 65 and those who own units for an extended period of time. Additionally, owners of a single home in provincial areas will be exempt from the punitive real estate tax, regardless of their homes' values.
Under the revised comprehensive real estate tax scheme, people holding high-priced apartments will likely see an up to 50 percent drop in property-related taxes in 2009 from this year. For instance, an owner of a 157-square meter I-Park apartment in Samsung-dong in southern Seoul, currently valued at 2.08 billion won, is expected to pay a total of 23.6 million won in all-inclusive real estate and other property holding related taxes this year.
But next year, the amount will likely fall by 50 percent to 11.8 million won. If he or she transfers partial ownership to a spouse, they can further reduce property-holding taxes under the new property tax system.
The National Assembly began studying ways of revising the comprehensive property tax system after the Constitutional Court ruled in November that it is partially unconstitutional.
The court said the property tax for high-end home owners is unconstitutional as it levies taxes based on aggregate property value held by all household members, not on an individual basis, discriminating against married couples. It also ruled that imposing the real estate tax on owners of single but luxurious homes does not conform to the nation's Constitution.
Following the ruling, the government has been returning taxes, along with interest earnings, it collected over the past three years to those who paid them because home values held by their family members exceeded 600 million won.
The government has collected about five trillion won in punitive real estate taxes since 2005. Of it, it plans to return a total of 630 billion won. Taxpayers are expected to get a second batch of 270 billion won in refunds in January.
The tax, first levied in 2005, applies a higher progressive tax rate to owners of homes worth more than 600 million won under the government-assessed price standard. It is designed to curb demand for luxurious apartments, especially in southern Seoul, and stabilize rises in property prices. Those holding land worth more than 300 million won are also subject to the tax.
Meanwhile, the strategy and finance subcommittee decided not to impose heavier capital gains taxes on people owning more than one house temporarily for the next two years.
Currently, those who own two units are required to pay 50 percent of capital gains as taxes when selling the first unit. As for those holding three homes, they are subject to 60 percent capital gains tax rates when selling the first unit, 50 percent for the second unit and between 6 to 33 percent for the last.
But in 2009 and 2010, people holding two units will be subject to 6 to 33 percent in capital gains tax rates when selling the first one, instead of 50 percent, while those who own three houses will be required to pay only 45 percent of capital gains as taxes, not 60 percent.
Lawmakers also decided to impose capital gains taxes on art works worth over 60 million won, beginning from 2011, while keeping current rates on inheritance and gift taxes. The GNP had initially proposed to slash the current 10 to 50 percent tax rates to 6 percent and 33 percent in 2010.