Family transactions are considered’gifts’
You should use the trading price reflecting the market price
The weekly increase rate of apartment prices in the metropolitan area rose to the highest in 8 years and 8 months since May 2012, when statistics were compiled by the Korea Real Estate Agency. Seoul apartment prices have also increased for three weeks in a row into the New Year and are seldom finding stability. The Korea Real Estate Agency (formerly the Korea Appraisal Board) announced on the 21st that the third week of January (as of the 18th), the nationwide apartment sales price rose 0.29%, which was a larger increase than last week (0.25%). By region, apartment prices in the metropolitan area rose 0.31%, recording the highest increase rate in 8 years and 8 months after the real estate agency statistics were prepared. The photo shows an apartment complex in downtown Seoul viewed from 63 Square in Yeouido, Seoul this morning.
As real estate tax pressures targeting multi-homed people intensify, interest in real estate transactions among families is growing. Real estate transactions between families, so if you trade at a price that is too low compared to the market price for the purpose of reducing the capital gains tax, you may get a tax bomb.
Basically, in the tax law, real estate transactions between families are viewed as’gifts’ rather than transfers. This is to prevent the case where the gift tax is higher than the capital gains tax, in order to avoid it, to pretend to be a sale and to engage in a family transaction. However, it can be recognized as a sale if it is proved that it is a normal sale by means of a sale contract, financial transaction statement, income document, etc.
In this process, it is important to trade at an appropriate trading price. Real estate transactions between families should be made within the range of 5% of the market price or 300 million won, whichever is lower. If this is violated, the sale price is not recognized and capital gains tax is imposed based on the market price.
For example, if you are trading an apartment with a city value of 1.5 billion, the transaction must be made within 1,425 million to 1.57 billion won. If it is reported that it has been traded for 1 billion won, the sale price is not recognized and it is regarded as an unfair transaction and capital gains tax is imposed based on the market price of 1.5 billion won.
In addition, the price of transactions between families must not exceed the range of 30% of the market price or 300 million won. If it is out of range, the person who takes the advantage must pay more gift tax. For example, a house with a market price of 1 billion won is considered to be in the range of 700 million to 1.3 billion won. Even if the house was sold for 500 million won, the tax law considers up to 700 million won as a normal transaction. Gift tax is imposed on 200 million won.
Meanwhile, apartment donations have increased significantly since last year’s government introduced measures to raise high-intensity real estate taxes targeting multi-homed people.
According to the current status of apartment transactions at the Korea Real Estate Agency, the number of apartment donations nationwide last year was 91,866 cases, the largest since the statistics were released in 2006. In particular, the number of apartment donations in Seoul last year reached 23,675 last year, increasing 1.9 times from the previous year (12,514 cases), breaking the record high.
In the July 10 measures last year, the government raised the highest tax rate for multi-homed people from 3.2% to 6.0%, and the highest rate of capital gains tax from 42.0% to 45.0%. This took effect in January of this year.
Reporter Kim Dong-pyo [email protected]