As the government prepares tax revisions aimed at increasing holding taxes on ultra-luxury homes and curbing capital gains, attention is focusing on how the baseline criteria will be established.

According to government sources on the 28th, authorities are running repeated simulations on how to define the scope of ultra-luxury homes subject to a higher comprehensive real estate holding tax, seeking to protect genuine homebuyers as much as possible while deterring speculative holdings.

Opinions calling for strengthening holding taxes on ultra-luxury homes to an appropriate level were received during three previous real estate policy debates and online submissions.

The government is designing plans to adjust the comprehensive real estate holding tax burden upward "gradually," centered around market values between 3 billion won and 5 billion won.

Currently, single-home owners are exempt from the comprehensive real estate holding tax if their officially assessed property value is 1.2 billion won or less.

Taking into account recent increases in housing prices, a plan is emerging to raise these basic deduction criteria to reduce the number of people subject to the tax, while increasing the burden on owners of ultra-luxury homes compared to the current level.

Regarding the criteria for ultra-luxury homes that will be subject to the tax hike, an official from the authorities explained, "We are narrowing down the scope (through discussions)," adding, "We are not planning to drastically increase taxes all at once from the ultra-luxury tier, but rather increase them little by little."

"We are considering keeping tax changes minimal for actual residents or even easing the tax burden (in certain cases)," the official added, noting, "We will not increase the tax burden on general homes that fall into a price range that cannot be called ultra-luxury, where owners have resided for a long time."

To achieve this, there is a possibility of subdividing the tax base brackets for the comprehensive real estate holding tax.

Currently, the individual comprehensive real estate holding tax rate on housing is divided into only 7 brackets, ranging from "300 million won or less" to "over 9.4 billion won," leading to criticisms that it is overly simplistic.

For example, a tax rate of 2% is applied to single-home owners in the bracket exceeding 5 billion won up to 9.4 billion won in the tax base.

Converted to apartment market values, this means that roughly 13.8 billion won to 24.4 billion won are treated as the same bracket.

The government is also examining ways to tweak the fair market value ratio applied when calculating the comprehensive real estate holding tax.

While currently set at 60%, it was raised as high as 95% in 2021 during the Moon Jae-in administration.

Because raising this ratio under the current system would have a widespread tax-hike effect, authorities are considering simultaneously adjusting other factors that determine the tax amount—focusing on ultra-luxury homes—so that holding tax burdens increase while taking the overall housing market situation into consideration.

The comprehensive real estate holding tax credit system is also expected to change.

Currently, a tax credit of 20% to 50% is applied if a household with a single home has owned it for 5 years or more, regardless of residency, and a credit of 20% to 40% is applied if the owner is aged 60 or older.

The two can be overlapped for a credit capped at 80%.

Measures such as reducing or abolishing holding credits to curb speculation, or using the residency period instead of the holding period as a standard, are being discussed.

However, considering the burden on retired individuals with reduced fixed incomes, the direction has been set to maintain the credit based on the owner's age.

In addition, the long-term holding special deduction method and limits are being redesigned to lower expected returns on a "well-chosen single home" to an appropriate level.

Currently, if a single home is owned for 3 years or more before being sold, a deduction rate of 12% to 40% is applied to capital gains, and a deduction rate of 8% to 40% is applied for residing in it for 2 years or more.

Combining the two allows a maximum deduction of 80%.

For multiple homeowners in non-regulated areas, a deduction of 6% to 30% is applied depending on the holding period.

Viewing that holding-period deductions fuel speculative demand for a "well-chosen single home," the government is discussing reducing or abolishing them, or converting them into residency-period deductions.

In addition, the government is reviewing plans to set an annual combined cap on deduction amounts.

This means that if a multiple homeowner sells multiple properties within a year, the deductions applied to each would be further reduced.

Some projections have also emerged that the residency deduction cap could be limited to the 1 billion won range (1 billion won or more and less than 2 billion won).

In response, an official from the authorities drew a line, stating, "Nothing has been decided yet, so we need to watch (discussions) a bit more."

Authorities believe that the deduction cap amounts may also vary depending on how the scope of ultra-luxury homes is defined.

During a real estate policy debate held on the 27th presided over by Prime Minister Han Duck-soo, Kang Sung-hoon, a professor of public policy at Hanyang University, suggested, "Even for a single home for residency purposes, ultra-luxury homes with massive capital gains need to have excessive benefits restricted through the establishment of long-term holding special deduction limits."

However, he also expressed the opinion that if homes are not ultra-luxury, single homes for residency purposes should maintain the current level of long-term holding special deduction benefits, and capital gains taxes should be further eased for single homes with long-term residency.

Rather than stubbornly sticking to specific factors, the relevant authorities plan to comprehensively overhaul multiple factors constituting holding taxes and capital gains taxes to reduce side effects and enhance policy effectiveness.

The government will discuss tax revision plans, including real estate taxes, at a party-government consultation on the 30th and officially announce them early next month.

(Photo: Yonhap News)