Starting next year, South Korea will see a significant widening of the property tax gap between individuals owning a single home and those owning multiple residences. This change, driven by proposed tax law revisions, is set to alter the tax burden for homeowners, particularly impacting those with higher-value properties.
Understanding the Property Tax Structure
Currently, the difference in comprehensive real estate tax (종부세, Jongbuse) between a single-homeowner and a three-homeowner is approximately 200,000 KRW (South Korean Won) for apartments valued at 1.4 billion KRW. This calculation considers factors such as property value, ownership duration, and age, aiming to mitigate excessive tax burdens. For multi-homeowners, the tax is often calculated based on the combined value of all their properties.
The disparity in tax amounts between single and multiple property owners tends to increase as the value of the properties rises. For instance, with apartments valued at 2 billion KRW, a three-homeowner pays 900,000 KRW more in property tax than a single-homeowner. This gap further expands to 1.57 million KRW when property values reach 3 billion KRW.
The upcoming tax law revisions, expected to be finalized by 2028, are projected to exacerbate this difference considerably. The adjustments include widening the gap in the basic deduction amount and applying a higher ratio of market value to the assessed value for multi-homeowners compared to single-homeowners. Specifically, the market value ratio for those with three or more homes will be 10 percentage points higher than for single-homeowners.
Impact of Property Value on Tax Disparity
A key finding from the analysis reveals that the tax difference between single and multi-homeowners only begins to narrow when property values approach 10 billion KRW. This suggests that the current tax system and the proposed changes disproportionately affect owners of high-value real estate.
The analysis categorizes homeowners into four main types based on the number of properties owned and whether they reside in one of their homes. These scenarios illustrate how the tax burden shifts under different ownership and residency situations.
Scenario 1: Non-Resident Owners
In the first scenario, neither the single-homeowner nor the three-homeowner resides in any of the properties they own. Under the revised tax laws effective in 2028, the property tax difference for properties valued at 2 billion KRW would be 5.99 million KRW, and for properties valued at 3 billion KRW, it would be 7.67 million KRW. As property values increase, the tax gap also widens. It’s only when property values reach approximately 13.4 billion KRW that the tax burden for a three-homeowner (49.38 million KRW) becomes slightly less than that of a single-homeowner (49.49 million KRW) under the current system.
Scenario 2: Owners Residing in One Property
The second scenario involves single-homeowners and three-homeowners who reside in one of the properties they own. In this case, the tax gap begins to narrow only when the property value reaches around 14.8 billion KRW, indicating a substantial threshold before any reduction in disparity is observed.
Scenario 3: Single Owner Non-Resident, Multi-Owner Resident
The third scenario presents a situation where a single-homeowner does not live in their owned property, while a three-homeowner resides in one of their homes. Despite living in their property, the multi-homeowner faces a significantly larger tax increase compared to the non-resident single-homeowner. The tax difference starts to decrease when the property value reaches approximately 9.5 billion KRW.
Scenario 4: Single Owner Resident, Multi-Owner Non-Resident
The fourth scenario describes a single-homeowner who resides in their property and a three-homeowner who does not. The point at which the tax difference begins to shrink compared to the current system is when the property value reaches 15.8 billion KRW.
Calculating Assessed Values
For single-homeowners, the assessed value for tax purposes is 1.4 billion KRW if they reside in the property and 900 million KRW if they do not. The calculation for multi-homeowners is more complex, involving a base amount of 400 million KRW plus an additional 500 million KRW multiplied by the ratio of the value of the occupied home to the total value of all owned properties. This means the assessed value can vary significantly based on the proportion of value held by the home they live in.
The figures presented for these four scenarios assume that the occupied home constitutes one-third of the total value of all owned properties. The government’s intention with these tax reforms is to move towards a system that taxes based on property value rather than the number of homes owned, aiming for greater equity. Currently, an individual with three homes valued at 1 billion KRW each faces a higher tax burden than someone with a single home valued at 3 billion KRW. The proposed revisions aim to address this perceived inequity.
However, if the base deduction amounts are not significantly increased, the upcoming revisions may not substantially narrow the tax gap between single and multi-homeowners.
