Korean Capital Gains Tax
Overview
Korean capital gains tax on property, yangdo sodeukse, works down from the realised gain through two deductions before any rate is applied. Sale price less acquisition cost and allowable expenses gives the raw gain; the long-term holding special deduction is subtracted next, followed by a basic annual deduction of 2.5 million won. The remainder passes through the same eight progressive brackets as income tax, running from six percent below 14 million won to 45 percent above one billion. A gain of 200 million won on a property held ten years by a general owner loses twenty percent to the holding deduction and 2.5 million to the basic allowance, leaving about 157.5 million won taxable. Multi-home owners in regulated districts face surcharges of twenty or thirty percentage points, and a qualifying single home under a statutory price ceiling may be exempt entirely.
Variables
| Symbol | Name | Unit | Description |
|---|---|---|---|
| $Gain$ | Transfer gain | KRW | Sale price minus acquisition price and allowable necessary expenses. |
| $LTHD$ | Long-term holding deduction | KRW | 장기보유특별공제, a share of the gain that scales with years held. |
| $Basic$ | Basic deduction | KRW | 기본공제 of 2,500,000 KRW per person per year. |
| $ProgressiveRate$ | Progressive rate | % | The eight-bracket income tax schedule applied to the taxable base. |
The Order of Operations Decides the Bill
Korean capital gains tax (양도소득세) on property is not a flat levy on the sale price. Three subtractions run before any rate is applied:
$$Tax = (Gain - LTHD - Basic) \times ProgressiveRate$$
Gain is already net of the purchase price and of documented necessary expenses
such as acquisition tax, brokerage and qualifying improvements. From that figure
the long-term holding deduction removes a percentage that grows with tenure, and
the basic deduction removes a further 2,500,000 KRW. Only the remainder — the
taxable base (과세표준) — meets the rate schedule.
The Rate Schedule
The taxable base passes through the same eight progressive brackets as ordinary income, from 6% on the first 14,000,000 KRW to 45% above 1,000,000,000 KRW. Each bracket taxes only its own slice, so a base of 100,000,000 KRW is taxed at 6%, 15%, 24% and 35% across successive tranches rather than at 35% throughout.
Why Tenure Dominates
Because the long-term holding deduction is applied before the progressive schedule, an extra year of ownership both removes gain and can drop the remaining base into a lower bracket. The compounding of those two effects is why holding period, more than sale price, drives the effective rate on a Korean property disposal.
Derivation & History
The structure reflects a deliberate policy sequence: the basic deduction exempts small disposals from filing burden, the long-term holding deduction compensates for the portion of nominal gain attributable to inflation over a long hold, and the progressive schedule then treats what remains as ordinary income. Aligning the rate table with the income tax brackets rather than maintaining a separate capital gains scale keeps the treatment of realised property gains and earned income consistent at the margin.
Worked Examples
General property held seven years with a 200,000,000 KRW gain
- Long-term holding deduction at seven years, general schedule: 14%
- LTHD = 200,000,000 × 0.14 = 28,000,000 KRW
- Subtract LTHD and the basic deduction: 200,000,000 − 28,000,000 − 2,500,000 = 169,500,000 KRW
- Apply the brackets: 6% on 14,000,000; 15% on 36,000,000; 24% on 38,000,000; 35% on 62,000,000; 38% on 19,500,000
- Bracket amounts: 840,000 + 5,400,000 + 9,120,000 + 21,700,000 + 7,410,000
Result: ≈ 44,470,000 KRW, an effective 22.2% of the original gain
Edge Cases & Limitations
A loss produces no deduction carry-forward across categories: property losses offset property gains within the same year, not gains on other asset classes.
The basic deduction is annual and personal: 2,500,000 KRW applies once per person per year across all transfers, so two disposals in one calendar year share a single deduction while splitting them across a year boundary yields two.
Multi-home surcharges sit outside this formula: a household owning several homes in a regulated area faces an additional 20 or 30 percentage points on the rate and forfeits the long-term holding deduction entirely.
A single-home household may owe nothing: a qualifying one-home disposal below the exemption ceiling is not taxed, in which case the deductions never come into play.
Real-World Applications
Sellers time disposals around the deduction table, most often waiting for a tenure threshold or shifting a contract date across a year boundary to capture a second basic deduction. Tax advisers model the same expression when advising on whether to transfer a property by gift or by sale, and lenders use the after-tax proceeds rather than the headline gain when assessing a borrower's capacity to trade up.