Finance Minister Gu Yoon-cheol reaffirmed the government's principle of concentrating tax benefits on actual residence rather than mere home ownership during a parliamentary session on September 11. The opposition criticized the government's proposal, arguing that homeowners who cannot reside in their properties due to work or children's education may face increased tax burdens.
During the economic sector question-and-answer session in the National Assembly, Gu explained that the aim of the real estate tax reform is to shift the tax system to provide more incentives for actual residents.
Park Soo-min, a lawmaker from the ruling People Power Party, raised concerns that homeowners who do not live in their properties could see their tax burdens increase. He argued that it is unfair to penalize homeowners through the tax system when they may have to live elsewhere due to job relocations or family obligations.
In response, Gu indicated that the government would broadly recognize reasonable exceptions for those unable to reside in their homes due to schooling or employment. He emphasized that the government is not seeking to penalize non-residents but rather to redesign the system to enhance tax benefits for actual residents. Following backlash from non-resident homeowners after the tax reform announcement, the government has been considering ways to broadly acknowledge reasonable non-residency reasons in its implementation guidelines.
The debate over the reform of the long-term capital gains tax exemption also continued. The government is proposing to transition the existing long-term capital gains tax exemption to focus on actual residence rather than ownership duration.
According to the proposed changes, the current exemption structure, which applies a 4% deduction for both ownership and residence periods, will gradually shift to prioritize residence. Starting in 2029, the ownership deduction will be eliminated, and an 8% deduction, with a maximum of 80%, will be applied based on the residence period. A new cap on the exemption amount is also set to be established, with 2 billion won in 2028 and 1 billion won from 2029 onward.
Park pointed out that increasing tax burdens on long-term homeowners who have built their assets over time due to significant capital gains is excessive. He specifically noted that older homeowners selling their properties to secure retirement funds could face heightened tax pressures.
Gu maintained that there is a need to normalize taxation on substantial capital gains from high-value properties. He stated, "A home should not just be for ownership but should be a place to live." He further explained that taxation should align with income levels when significant capital gains are realized from high-value properties.
The government's decision to revise the long-term capital gains tax exemption is based on the assessment that tax benefits are disproportionately concentrated on high-value properties. According to the National Tax Service, approximately 5.1 trillion won in long-term capital gains tax exemptions applied to high-value properties exceeding 1.2 billion won in 2024, with about 90%, or 4.6 trillion won, concentrated in Seoul. Among the top 100 cases of long-term capital gains tax exemptions, 99 were properties located in Seoul.
However, how broadly the government will recognize the circumstances of homeowners who cannot reside in their properties due to unavoidable life situations while maintaining the principle of residence-based taxation is expected to be a key issue moving forward. The 1 billion won cap on the long-term capital gains tax exemption is also likely to be a major point of contention during the National Assembly's review process.
* This article has been translated by AI.
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