Gov't eyes tougher comprehensive real estate tax on priciest single homes

The government appears to be leaning toward tightening the comprehensive real estate tax burden on owners of a single high-value home — the so-called "smart single property" strategy — rather than penalizing multi-home ownership, as part of this year's overhaul of the tax system. To that end, officials are working on a "three-tier design" that differentiates tax burdens based on a basic deduction threshold and an ultra-high-value cutoff.

According to officials familiar with the matter, the government is in the final stages of running simulations comparing how different scenarios — adjusting the size of the basic deduction, setting the ultra-high-value threshold, and recalibrating tax rates and taxable-base brackets — would affect tax revenue and the burden on individual taxpayers.

The core concept divides taxpayers into three groups — a basic deduction group, a moderate-burden group and an ultra-high-value group — and applies differentiated tax burdens based on where a property falls relative to the two threshold lines.

Under the current comprehensive real estate tax system, the taxable base is calculated by subtracting the basic deduction — 1.2 billion won ($817,000) for single-home owners and 900 million won for multi-home owners — from the publicly assessed value of all properties held by an individual, then multiplying the result by the fair market value ratio of 60 percent. The final tax liability is then determined by applying the applicable tax rate and deducting property tax credits, the single-household owner tax credit, and any amount exceeding the tax burden cap.

The basic deduction group would continue to be exempt from the comprehensive real estate tax, as under the current system. However, the government is also reportedly considering a modest upward adjustment to the 1.2 billion won deduction threshold to reflect the rise in real estate asset values in recent years.

The moderate-burden group — those whose property values fall between the basic deduction threshold and the ultra-high-value cutoff — would see their tax burden held at roughly the current level or raised only gradually.

For properties above the ultra-high-value threshold, the government is considering more intensive taxation through finer taxable-base brackets or higher rates. The threshold for the ultra-high-value category is being discussed at a market price of between 3 billion and 5 billion won.

Lee Hyeong-il, first vice minister of the Ministry of Economy and Finance, said at a public forum on real estate policy on Thursday that "there were views that excessive benefits on property holding taxes for owners of ultra-high-value single homes should be limited," adding that "opinions were put forward suggesting the ultra-high-value threshold should be set at 3 billion won or above, or 5 billion won or above."

The direction of the overhaul also aligns with President Lee Jae-myung's vision of "differentiated taxation," which he outlined at the public forum on real estate policy.

"We can set an appropriate basic holding burden based on a standard single home, then reduce it for owner-occupied residences or homes for ordinary and middle-class households," Lee said. "Conversely, we are considering a plan to add weighting factors and apply graduated differentiation to luxury homes, multi-home holdings, and properties clearly held for speculative purposes."

The forum has also given momentum to a shift in the comprehensive real estate tax framework — from a system centered on the number of homes owned to one based on the value of the homes. Under the current system, owners of two or fewer homes are taxed at rates of 0.5 to 2.7 percent, while those with three or more homes face a heavier rate of 0.5 to 5.0 percent.

Critics have long noted that this can produce anomalies — for instance, a person holding three homes worth 1 billion won each could face a higher tax rate than someone who owns a single home worth 3 billion won.

At Thursday's forum, Kang Seong-hun, a professor in the department of public policy at Hanyang University, proposed that "from the standpoint of tax equity, there is a need to discuss applying tax rates based on the value of homes held rather than the number of homes."

The deduction structure is also likely to be revised to give incentives to owner-occupants. Currently, owners who have held a single home for five or more years receive a tax credit of 20 to 50 percent depending on the holding period, and those aged 60 or older as of the tax base date receive a credit of 20 to 40 percent based on age. The two credits can be applied together up to a combined ceiling of 80 percent, regardless of whether the owner actually lives in the property.

The government is examining whether to retain the existing tax credit structure — including the age-based and long-term holding credits — or to revamp it to more actively reflect whether the owner actually resides in the property.

Particularly under discussion is a redesign that would shift the focus of deductions from long-term holding to actual residency, protecting single-home owners who genuinely live in their properties while drawing a clear distinction from those holding homes purely for investment.

However, the size of the basic deduction, the ultra-high-value threshold, whether to switch to a value-based system, and the specifics of the deduction overhaul have yet to be finalized.

The government plans to hold an additional public forum on real estate policy on Monday, chaired by Prime Minister Han Seong-sook, to gather further public input before incorporating the final plan into a tax law amendment bill scheduled for release in early August.