Seoul – In the heart of Seoul's upscale Hannam neighborhood, where celebrities like G-Dragon and RM and Jimin of BTS reside, stands the exclusive Nine One Hannam apartment complex. Despite its prestige and sky-high prices – a 273.41㎡ unit sold for a staggering ₩22 billion last July – this and other luxury complexes are not classified as "luxury homes" under current tax law.
This legal loophole has sparked a heated debate, with the Seoul Metropolitan Government recently criticizing the existing regulations as "out of touch with reality."
A4 Paper's Difference in Tax Burden
The "luxury home" classification, introduced in 1975 to curb extravagant spending, hinges on both property value and size. For apartments, the standard is a market value exceeding ₩900 million and a floor area over 245㎡. However, a popular workaround has emerged: developers build units slightly below this threshold, thereby avoiding the hefty luxury home tax.
Nine One Hannam's most spacious unit, at 273.41㎡, narrowly misses the 274㎡ limit for duplexes. Similarly, units in other ultra-expensive complexes like The Penthouse and Eterno Cheongdam strategically fall just short of the size requirement.
Tax Evasion or Smart Design?
Some developers further exploit the system by incorporating features like balconies that can be converted into living space, effectively expanding the usable area without increasing the official floor area. While some view this as clever design within legal boundaries, others decry it as a loophole that undermines tax fairness.
The Injustice of 0.1㎡
The absurdity of the situation is evident: a mere 0.1㎡ difference in size can result in a drastically different tax burden. According to a study by the Korea Institute of Local Finance, apartments slightly over the size limit command a 16% higher average price, yet incur a 326% higher tax.
Local governments responsible for collecting these taxes are frustrated. Last year, Seoul attempted to classify some units in Nine One Hannam as luxury homes, citing features like partitioned underground parking and storage as part of the living space. However, the Tax Tribunal ruled against the city, highlighting the urgent need for reform.
Calls for Reform
Experts and officials are calling for the abolition of the size criterion in determining luxury homes. They argue that it leads to arbitrary tax burdens and encourages "trick" designs. Others suggest raising the price threshold or implementing a progressive tax system similar to income tax.
The Seoul Metropolitan Government is committed to addressing this issue. They plan to complete a research project by June to propose reforms. Meanwhile, a bill has been introduced in the National Assembly to revise the law.
A Matter of Fairness
The debate over luxury home taxation is not just about numbers; it's about fairness and common sense. As long as outdated laws allow for such glaring discrepancies, the integrity of the tax system remains in question.
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