Inheritance, gift tax exemptions prove costly
The data also showed that less than 2 percent of inheritors pay inheritance tax due to a combination of tax deductions and exemptions. For gifts, less than half of recipients pay their gift tax for the same reasons.
According to Rep. Park Kwang-on of the ruling Democratic Party, who released the data and serves on the National Assembly’s finance committee, a total of 251.56 trillion won was inherited by 2.73 million people between 2008 and 2016. In addition, 2.1 million people received 281.8 trillion won in gifts from their parents in the same period. In total, 533.44 trillion won in assets was passed down during the nine-year period, or 59.2 trillion won every year.
Inheritance differs from a gift in that it is received after the parent has passed away. According to the ministry data, only 52,607 inheritors, or 1.9 percent, actually paid their inheritance tax. For property gifts the figure was higher, with 949,484 recipients, or 45.1 percent, paying their fair share in tax.
While Korea’s maximum inheritance and gift tax ceiling stands at 50 percent, higher than France’s 45 percent and the U.S. and the U.K.’s 40 percent, a package of tax deductions open the door for many to skip paying all together.
Under the current inheritance tax system, an inheritance worth up to 200 million won will pay a reduced amount of tax. If it is a spouse that will get the inheritance the figure jumps up to 500 million won. The amount of the reduction depends on the number of children and the number of family members in their 60s and older.
A gift to a spouse worth up to 600 million won will benefit from a lower tax rate, while a child can receive a gift worth up 50 million won at a reduced rate, providing the gift is bestowed over a 10-year period.
Real estate accounted for the bulk of inheritance tax, at 65.9 percent or 54.73 trillion won, attesting to the fact that Koreans see real estate as a valuable asset that is passed along to the next generation. Inheritance tax on financial assets came in second at 17.2 percent, or 14.26 trillion won. Securities followed next at 11.3 percent, or 9.38 trillion won.
The same goes for gifts. Gift tax on real estate accounted for 48.8 percent, or 63.89 trillion won, followed by financial assets at 23 percent, or 30.13 trillion won.
“It is logical to provide tax deductions for gifts and inheritance as it is a socially accepted norm for parents to pass down their assets to children,” said the lawmaker. “But the time has come for us to review and overhaul the current deduction system for those belong to the top 10 percent bracket and give away assets worth close to 10 billion won and gifts to underage children.”
BY KANG JIN-KYU [firstname.lastname@example.org]