The South Korean government is easing the capital gains tax on multiple homeowners just three months after reinstating it on May 10. This move is part of a broader tax reform plan aimed at increasing the burden on homeowners while providing a pathway for selling properties by lowering capital gains tax rates in 2027 and 2028.
On August 3, the Ministry of Economy and Finance announced the details of the "2026 Tax Reform Plan" during a meeting of the Tax Development Advisory Committee.
Currently, homeowners in designated areas face additional capital gains taxes on top of the basic income tax rate. Those with two homes pay an additional 20 percentage points, while those with three or more homes face an additional 30 percentage points. For those in the highest tax bracket, the effective rates can reach 65% and 75%, respectively.
The reform plan proposes to reduce the additional tax rate for homeowners with two properties to 5 percentage points and for those with three or more properties to 10 percentage points starting in 2027. This would lower the effective rates to 50% and 55% for the highest brackets.
In 2028, the additional tax rates would further decrease by 10 percentage points for two-home owners and 15 percentage points for those with three or more homes. However, starting in 2029, the rates will revert to their current levels, increasing by 20 percentage points and 30 percentage points, respectively. This structure aims to provide a temporary reduction in tax rates over two years to encourage property sales before normalizing the rates.
The government had temporarily suspended the additional capital gains tax for multiple homeowners since May 2022 but resumed it on May 10 of this year. The recent tax reduction comes just three months after the reinstatement, raising questions about the predictability of the policy.
Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol explained, "Considering the normalization of property taxes for multiple homeowners, we are temporarily easing the additional capital gains tax system implemented on May 10 to provide an opportunity for those willing to sell their properties until 2028."
The reduction in capital gains tax is linked to the strengthening of the comprehensive real estate tax outlined in the reform plan. Starting in 2028, the government will unify the tax rate criteria based on property value rather than the number of homes owned, increasing the fair market value ratio for owners of three or more homes and those with two or more homes in designated areas from the current 60% to 80%.
Additionally, the basic deductions and tax credits for non-residential properties and multiple homeowners will be reduced. As the holding costs for multiple homeowners increase, the government aims to temporarily lower the tax burden at the selling stage to encourage more properties to enter the market.
With the reduction in capital gains tax, there is potential for multiple homeowners who previously hesitated to sell due to tax burdens to list their properties, especially since the benefits will also apply to properties sold this year under the additional tax rate. This could help narrow the tax burden differences based on the timing of sales.
However, the rapid change in tax rates shortly after the reinstatement of the additional tax is likely to spark controversy over the predictability of the policy. If the government’s timeline for suspending the additional tax continues to shift with each reform, it may lead to multiple homeowners delaying sales in hopes of further reductions.
As the additional tax rates are set to revert to their original levels in 2029, the actual impact on the market will depend on the timing of legislative changes and the state of the housing market. The government plans to submit the related tax law amendments to the National Assembly on September 3 after going through legislative notice and cabinet meetings.
* This article has been translated by AI.
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