President Lee Jae-myung's administration has signaled a major shift in housing policy, aiming to dismantle a key tax incentive for real estate investors.
The move targets the Long-Term Holding Special Deduction (LTSD), a tax break that significantly reduces capital gains taxes for property owners who hold onto their assets for many years. For non-resident owners, the government views this as a subsidy for speculation, which has contributed to a 'listings lock' and driven up prices in Seoul amid tight supply. President Lee has proposed a phased repeal—a six-month grace period, followed by a six-month partial phase-out, and then full abolition—to cushion the market impact.
The financial difference is significant. For example, on a ₩700 million capital gain from a property held for over 10 years, the taxable amount could jump from ₩140 million (with an 80% deduction) to the full ₩700 million without the deduction. This sharp increase in tax liability is intended to remove the 'hold-and-wait' incentive that has kept properties off the market.
This decision is not sudden but the culmination of months of policy signals. First, the government ended temporary tax relief for multi-home owners, setting a precedent for tightening tax rules. Second, with the Bank of Korea holding interest rates steady, tax policy became the primary tool to cool the housing market. Finally, persistent issues like record-high rents and the expansion of land-transaction permit zones created the political urgency for a structural fix.
It’s important to note the administration is drawing a clear line. The proposed repeal specifically targets non-residential holdings. The enhanced tax benefits for genuine single-home owner-occupiers—those who live in their homes for a required period—are expected to be preserved. The goal is to re-orient the market toward housing for shelter, not for profit.
A key point of debate moving forward will be whether to introduce inflation indexing for the original purchase price. Without it, sellers could be unfairly taxed on gains that are purely due to inflation, not a real increase in value. This will likely be a major bargaining chip as the bill moves through the National Assembly.
- Long-Term Holding Special Deduction (LTSD): A tax provision that reduces the taxable capital gains on an asset based on how long it has been held.
- Capital Gains Tax: A tax on the profit realized on the sale of a non-inventory asset.
- Inflation Indexing: Adjusting the original purchase price of an asset for inflation when calculating capital gains to avoid taxing nominal, inflation-driven gains.