Apartments being given away to avoid new taxes
With the increase in the capital gains tax and the comprehensive real estate tax for certain homeowners, it can make sense to gift a property instead of selling it.
In 2020, about 14.2 percent of property transactions were gifts, according to the office of the People Power Party lawmaker Kim Sang-hoon, based on data provided by the Korea Appraisal Board. That’s the highest rate since the agency started compiling related data in 2006.
It is also more than a three-fold increase compared to the time before Moon Jae-in took office. Between 2011 and 2016, only 4.5 percent of the transactions were gifts on average, according to the data.
The situation was most evident in areas like Seocho District and Songpa District, both in southern Seoul, where many expensive apartments are located.
In Seocho, 26.8 percent of apartment transactions were gifts, the highest rate in Seoul. In Songpa, the rate was 25.4 percent, and in Gangdong District in eastern Seoul, 22.7 percent.
In Yangcheon District, western Seoul, about 19.6 percent of all transactions were transfers, while 16.2 percent of transactions in Gangnam District, southern Seoul, were gifts.
The ratio of apartment gifts in Gangdong District significantly rose compared to 2017, when only 2.5 percent of transactions were transfers. This year through May, the rate was 25.7 percent.
During the same period, the rate of property gifts in Nowon District, northern Seoul, jumped to 18.2 percent from 3 percent.
Rep. Kim pointed out that the "obligations of the new capital gains tax and comprehensive real estate tax have encouraged people to give away their properties instead of selling them in the market."
Starting June, the maximum ceiling on the capital gains tax was raised to 75 percent, up from 65 percent, for those who own three or more apartments in designated areas. Combined with the additional taxes levied by the local governments, multiple homeowners who have more than three apartments are obliged to pay some 82.5 percent of gains as taxes.
The comprehensive real estate tax is another driving force. The government raised the maximum rate of the tax to 6 percent of assessed value from 3.2 percent for people owning multiple homes. If the beneficiary doesn’t have an apartment, they could pay far less than the person who gave them the apartment.
Gift taxes still apply to transfers — which range from 10 to 50 percent — but many homeowners will face higher payments if subject to the capital gains tax and the comprehensive real estate tax. The top rate doesn’t kick in until 3 billion won ($2.6 million).
It can still be a tough calculation, as the gift tax is based on the value of the asset while the capital gains tax is based on the sales price minus the acquisition cost.
“The Moon administration expected that the large tax bills would encourage multiple owners to sell their properties and stabilize real estate prices,” Rep. Kim said. “But it made homeowners give away their properties, which reduced the number of transactions and eventually led an increase in property prices.”
“A change in real estate policies is urgently needed at this point, such as reduction of taxes and deregulations of loans,” Kim added.
BY SARAH CHEA [firstname.lastname@example.org]