South Korea eyes tax reform to push elderly homeowners out of luxury Seoul properties

South Korea's government has unveiled a tax reform package targeting high-value housing, aiming to increase the burden on owners of luxury properties while incentivizing elderly homeowners to sell their Seoul residences and relocate to non-metropolitan regions. The plan is designed to pressure elderly individuals, especially those in affluent areas like Gangnam, who possess expensive homes but have limited cash income, to divest their assets.

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Seoul's Gangnam area homeowners who have long held expensive homes but have low cash income will feel the greatest burden from this tax reform plan.

The proposed changes include a "pinpoint increase" in the comprehensive real estate holding tax (Jongbuse) for high-value homes. The tax rates will be unified based on housing value and gradually increased by 2028. For properties valued between 2.5 billion and 5 billion won, the rate will rise to 3%; between 5 billion and 9.4 billion won, to 4%; and above 9.4 billion won, to 5%. For single homeowners in the 2.5 billion to 9.4 billion won bracket, tax rates will effectively double from the current 1.5-2.0% to 3.0-4.0%.

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They will be in a situation where they have to sell their homes by the end of next year and downsize. Due to loss aversion, properties won't immediately appear below market price, but they will inevitably have to release tax-saving properties in stages.

While age-based deductions for seniors will be maintained, combined with residency deductions to a maximum of 80%, a cap on the deduction amount will be introduced. This cap will be 8 million won in 2027 and 6 million won in 2028. Consequently, even if the officially assessed property value remains constant, owners of ultra-high-value homes in Seoul could face annual holding tax increases of tens of millions of won. This significant increase in tax burden is expected to compel elderly individuals with no post-retirement income to consider selling their homes.

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This tax reform is being criticized as 'Goryeojang tax law,' forcing the elderly out of their homes.

To facilitate this transition, the government is also offering capital gains tax reductions for elderly homeowners who sell their metropolitan area homes and move to non-metropolitan areas. Eligible individuals aged 65 and above who have owned and resided in a Seoul property for at least five years can receive a temporary reduction of 50% (up to 500 million won) in capital gains tax in 2027 and 30% (up to 300 million won) in 2028. This measure, alongside an expanded system for deferring holding tax payments for eligible elderly homeowners, aims to encourage the circulation of housing assets and potentially accelerate generational change among property owners in prime Seoul locations.

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There is a need to encourage the circulation of housing assets that have been tied up for a long time by inducing the elderly to sell their homes.