Capital Gains Tax Heavy Surcharge Reverses Course as Comprehensive Real Estate Tax Rises

▲ Apartment complexes in Seoul

The government has decided to temporarily ease heavy capital gains taxes on homes in regulated areas for multiple-home owners, following the overhaul of the comprehensive real estate tax.

Heavy taxation was reinstated on May 10 of this year after a four-year grace period ended. However, with the decision to raise the comprehensive real estate tax rates, this move opens an exit for multiple-home owners to sell their properties, taking into account their increased financial burden.

The tax revision plan for 2026 announced by the Ministry of Economy and Finance today (the 3rd) includes a plan to temporarily ease the heavy capital gains tax on houses in regulated areas held for two or more years by multiple-home owners through 2028.

Accordingly, for owners of two homes, an additional 5 percentage points (p) will be added to the base tax rate (6 to 45%) in 2027, and 10 percentage points (p) in 2028.

For those holding three or more homes, an additional 10 percentage points (p) will be added in 2027, and 15 percentage points (p) in 2028.

Starting May 10 of this year, the tax rates were raised by 20 percentage points (p) for owners of two homes and 30 percentage points (p) for those with three or more homes, respectively. While tax rates will be lowered through 2028, differences are set by year so that selling sooner remains more advantageous.

Just like the current heavy capital gains tax, long-term holding special deductions will not be applied during the relief period.

For example, if a two-home owner sells a house in a regulated area and makes a capital gain of 500 million won, the capital gains tax under heavy taxation would be about 270 million won. However, if the relief measures are applied, the tax would be about 200 million won if sold in 2027 and about 220 million won if sold in 2028, according to the Ministry of Economy and Finance.

The government will implement this temporary relief on heavy taxation by adding a proviso to the Income Tax Act.

Those who sold their properties before the law revision, starting from May 10 of this year, will also be eligible for the heavy tax relief at the 2027 level.

If the scheduled reporting period is next year, the taxes can be calculated immediately using the eased rates, and those who have already reported and paid can receive a refund for the difference during the final reporting period next May.

Starting in 2029, the heavy tax relief will be eliminated by applying +20 percentage points (p) for two homes and +30 percentage points (p) for three or more homes.

As a result, a capital gains tax rate of up to 75% will be applied.

The exclusion from heavy capital gains taxes on homes in regulated areas for multiple-home owners began on May 10, 2022, as a one-year temporary plan, and was subsequently extended repeatedly over four years until May 9 of this year.

During a Cabinet meeting on February 3, Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-cheol reported plans to resume heavy taxation, stating, "This is probably the last chance to avoid the heavy surcharge." President Lee Jae-myung drew attention by remarking, "There is no 'probably.' (Omitted) Trust and predictability are truly important for policies, but this was not deferred for four years; it was deferred three times by one year each."

A government official explained the background, saying, "(At the time) it was uncertain whether holding taxes would be raised, and if so, by how much. Now that the principle of normalizing holding taxes has been established and the policy environment has changed, we judged it right to give multiple-home owners a choice."

(Photo: Yonhap News)

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