The South Korean government is shifting the focus of its real estate tax system from how long a property is owned to how long it is actually lived in.
Lee Hyung-il, the First Deputy Minister of Finance, discussed this change during an appearance on the Cheong Wa Dae YouTube program 'Fact Factory' on August 6. He described the direction of the 2026 tax reform plan as aimed at establishing a residency-centered housing market and improving tax equity.
According to the reform plan, homeowners with one residence will be exempt from property tax on homes valued up to approximately 2 billion won (about $1.5 million). This raises the tax exemption threshold from the previous value of about 1.7 billion won, meaning homes valued between 2 billion and 3 billion won will see a reduction in tax burden.
For instance, a homeowner who has lived in a 3 billion won property for 10 years will see their property tax decrease from 910,000 won to 760,000 won. Beyond a value of 3 billion won, the tax burden will gradually increase, with ultra-high-value homes exceeding 4 billion to 5 billion won facing a larger tax impact.
Lee explained that the goal is to protect typical homeowners while adjusting excessive benefits concentrated on ultra-high-value properties. The intent is to consider both the value of the home and the actual residency status rather than providing uniform benefits solely based on ownership of a single property.
Capital gains tax will also be restructured under the same principles. The existing 'long-term ownership special deduction' will be replaced with a 'long-term residency income deduction.' The deduction based solely on the duration of property ownership will be gradually reduced, while actual residency will receive an annual deduction of 8%, with a maximum of 80% over 10 years.
Additional measures will ease the tax burden for long-term residents. Homeowners who have lived in a single property for over 10 years and whose sale price is below 3 billion won will see their basic capital gains tax exemption increase from 2.5 million won to 25 million won. The Ministry of Finance estimates this could result in tax savings of up to 5 million to 7 million won.
Exceptions will be made for those unable to reside in their homes due to job transfers, schooling, overseas stays, illness, or caring for parents. If certain conditions are met, these periods will still count toward residency, allowing homeowners to continue accumulating residency time upon returning.
In response to concerns that elderly individuals with reduced incomes might have to sell their homes due to taxes, the government has proposed measures to ease requirements for property tax deferral for those aged 65 and older who have lived in a single property for over 10 years. Additionally, if they sell a home in the metropolitan area and move to a non-metropolitan area, they could receive a capital gains tax reduction of up to 50%, or 500 million won.
Lee countered criticisms that this policy pressures elderly individuals to relocate, stating, “This is not an inducement to move.” He explained that even with adjustments to property taxes, those wishing to remain in their homes can defer payments, while those choosing to sell are provided with an exit strategy.
For multi-homeowners, the government will allow a grace period for property sales. The capital gains tax rate for multi-homeowners in designated adjustment areas will be temporarily lowered before gradually returning to the original level. Lee emphasized that this is a 'temporary easing' rather than a complete suspension of the tax.
Concerns that a residency-focused reform could lead to a decrease in rental properties and a shift to monthly rentals will be addressed through increased housing supply and tenant support. The government plans to boost the supply of public rental housing in high-demand areas, prioritizing young people. The annual limit for monthly rent tax deductions will also be raised from 10 million won to 12 million won.
Regarding the shortage of housing supply, the government is working on measures to shorten the time required for construction to begin. Lee stated, “We will accelerate efforts to announce supply measures soon.”
During the broadcast, other tax reform issues beyond real estate were also discussed. One notable proposal is to eliminate the childbirth tax credit in favor of direct support through the budget. This change considers that low-income households, which pay little to no taxes, do not benefit sufficiently from tax credits.
Lee remarked, “Tax support is like a pie in the sky for those who do not pay income tax,” adding that the Ministry of Planning and Finance is reviewing plans to reflect more support in next year’s budget than the previous childbirth tax credit amount.
* This article has been translated by AI.
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