Capital Gains Tax Shackles Undermine Property Rights and Freedom of Movement

Real estate taxes are not merely a policy tool for stabilizing housing prices. They also reflect policy judgments about how to distribute capital gains arising from housing and to what extent they should be taxed. The recent capital gains tax reform should likewise be examined from this perspective.

The government’s “2026 Tax Reform Plan,” finalized on September 1, includes the introduction of a cap on the special long-term holding deduction, the so-called “capital gains tax cap,” as well as adjustments to the heavier capital gains tax regime for owners of multiple homes. The stated aim is to improve tax equity in the taxation of high-priced homes and multiple-home ownership.

But behind this, one can also discern a policy trend toward expanding taxation on real estate capital gains and more actively reflecting the public nature of land and housing in the tax system.

Under the government proposal, the special long-term holding deduction for one-household, one-home owners will be capped at 2 billion won in 2028 and 1 billion won from 2029 onward.

In a hypothetical simulation by the Center for Free Enterprise (CFE), the estimated capital gains tax for a long-term resident owning a single home purchased for 2.5 billion won and sold for 7.5 billion won rises from about 347 million won to 1.51 billion won.

Although this calculation excludes individual expenses and other deductions, it shows that the deduction cap alone can significantly alter the tax burden.

Imposing appropriate taxes on large capital gains is necessary from the standpoint of tax equity. However, housing price increases accumulated over a long period also include nominal gains resulting from inflation. A uniform deduction cap that does not sufficiently take this into account may impose an excessive burden relative to the actual economic gain.

Tax reform for multiple-home owners should be reviewed in the same context. The government proposal includes reducing the long-term holding deduction for multiple-home owners in non-designated areas and raising the heavier tax rates again from 2029.

If no distinction is made between short-term speculation and cases where rental housing has been supplied over a long period, unnecessary constraints may be imposed on private rental supply and ordinary property disposition.

What must not be overlooked here is the “constitutional right to property.” The property right guaranteed under Article 23 of the Constitution includes not only ownership, but also the ability to use, profit from, and dispose of property. If excessive capital gains tax makes it difficult to dispose of property, ownership may be guaranteed in form, but its substantive exercise may be constrained.

The freedom of residence and movement guaranteed under Article 14 of the Constitution must also be considered. In situations such as downsizing by the elderly, job relocation, or moving to care for family members, high capital gains taxes can become an economic barrier to residential mobility.

Of course, an increase in the tax burden does not automatically mean unconstitutionality, but it is necessary to examine whether the burden imposed on fundamental rights is excessive relative to the purpose of taxation.

At this point, capital gains tax reform must move beyond debates simply about raising or lowering tax rates and deduction limits. Consideration should also be given to a tax system that reflects inflation, reasonable deductions for long-term holding and rental provision, and tax deferral for the residential moves of the elderly and end users. Frequent changes to heavier tax rates should be avoided, and stable tax principles that taxpayers can predict should also be established.

The National Assembly as well must not review this tax law amendment solely from the standpoint of tax revenue and tax equity. It should also examine the impact of tax reform on citizens’ ability to dispose of property and relocate their residence, and consider alternatives that place fewer restrictions on fundamental rights.

Even if the public nature of real estate and tax equity are pursued, the people’s property rights and freedom of residence and movement must be respected.

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Original title: 양도세 족쇄에 재산권도, 거주이전의 자유도 흔들린다

Author: Gwang yong Go

Date: 2026-11-11

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=1&idx=29728