Major overhaul of inheritance tax welcome, but revenue replacement remains a challenge
Published: 13 Mar. 2025, 00:00
Audio report: written by reporters, read by AI
The Ministry of Economy and Finance's decision Wednesday to significantly overhaul the inheritance tax system to alleviate the tax burden on the middle class is a welcome move. The core change is the shift from the current "estate tax" system, which taxes the entire inherited estate, to an "inheritance acquisition tax" system, where each heir is taxed individually. This marks the first change in 75 years since the introduction of the inheritance tax in 1950. The rationale is that it is fairer to tax individuals based on what they receive, similar to the gift tax.
![Jeong Jeong-hoon, third from left, head of the tax and customs office at the Ministry of Economy and Finance, speaks during a press briefing at the government complex in Sejong on March 11. [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2025/03/13/38fb2a59-b6fa-4885-be81-ca8998625a3b.jpg)
Among the 38 member countries of the Organization for Economic Cooperation and Development (OECD), 14 do not have an inheritance tax, and of the 24 that do, only four countries, including Korea, the United States, Britain and Denmark, use the estate tax system. The current estate tax system imposes a progressive tax on the entire estate, resulting in a heavy tax burden. However, by taxing each heir individually, the tax burden is reduced as the taxable amount is based on what each person receives.
Additionally, the government plans to increase the spousal deduction from 500 million won (about $345,000) to 1 billion won and the child deduction from 50 million won to 500 million won. This change reflects the rise in asset prices, such as real estate, which has not been accounted for since the last adjustment in 1997. For example, the inheritance tax burden on a 2 billion won apartment, which was previously around 130 million won, will be eliminated. The government's move to reform the inheritance tax comes as more middle-class families with a single home face inheritance tax burdens. The proportion of inheritance tax in national tax revenue has increased nearly fivefold from 0.48 percent in 2000 to 2.48 percent in 2023.
The government plans to submit the tax law amendment to the National Assembly in May, to implement the inheritance acquisition tax in 2028. However, the endless political strife between the ruling and opposition parties remains a variable. The parties have been at odds over almost every issue, including the Special Semiconductor Act, raising doubts about whether the government's inheritance tax reform will be realized. Democratic Party (DP) leader Lee Jae-myung has proposed increasing the deduction limit from the current 1 billion won to 1.8 billion won, while People Power Party (PPP) emergency committee chairman Kwon Young-se has countered by calling for the complete abolition of the spousal inheritance tax. The DP has also reacted negatively to the government's plan, calling the inheritance acquisition tax a "tax cut for the wealthy" and likening it to "announcing a reconstruction while trying to repair a house."
Given that both parties agree on reducing the tax burden on the middle class, they must work to narrow their differences. Even if they successfully agree to reform the tax system, the challenge remains that the national treasury is running dry, with a revenue shortfall expected to reach 87 trillion won in 2023-2024. The parties must find ways to reduce the burden on the middle class while supplementing tax revenue. The expected annual revenue loss from the inheritance tax reform is estimated to be 2 trillion won. If the revenue shortfall continues, sustaining the inheritance tax relief will be difficult. A cautious approach that considers income redistribution and tax revenue is necessary.
Translated using generative AI and edited by Korea JoongAng Daily staff.
Jeong Jeong-hoon, third from left, head of the tax and customs office at the Ministry of Economy and Finance, speaks during a press briefing at the government complex in Sejong on March 11. [YONHAP]
Among the 38 member countries of the Organization for Economic Cooperation and Development (OECD), 14 do not have an inheritance tax, and of the 24 that do, only four countries, including Korea, the United States, Britain and Denmark, use the estate tax system. The current estate tax system imposes a progressive tax on the entire estate, resulting in a heavy tax burden. However, by taxing each heir individually, the tax burden is reduced as the taxable amount is based on what each person receives.
Additionally, the government plans to increase the spousal deduction from 500 million won (about $345,000) to 1 billion won and the child deduction from 50 million won to 500 million won. This change reflects the rise in asset prices, such as real estate, which has not been accounted for since the last adjustment in 1997. For example, the inheritance tax burden on a 2 billion won apartment, which was previously around 130 million won, will be eliminated. The government's move to reform the inheritance tax comes as more middle-class families with a single home face inheritance tax burdens. The proportion of inheritance tax in national tax revenue has increased nearly fivefold from 0.48 percent in 2000 to 2.48 percent in 2023.
The government plans to submit the tax law amendment to the National Assembly in May, to implement the inheritance acquisition tax in 2028. However, the endless political strife between the ruling and opposition parties remains a variable. The parties have been at odds over almost every issue, including the Special Semiconductor Act, raising doubts about whether the government's inheritance tax reform will be realized. Democratic Party (DP) leader Lee Jae-myung has proposed increasing the deduction limit from the current 1 billion won to 1.8 billion won, while People Power Party (PPP) emergency committee chairman Kwon Young-se has countered by calling for the complete abolition of the spousal inheritance tax. The DP has also reacted negatively to the government's plan, calling the inheritance acquisition tax a "tax cut for the wealthy" and likening it to "announcing a reconstruction while trying to repair a house."
Given that both parties agree on reducing the tax burden on the middle class, they must work to narrow their differences. Even if they successfully agree to reform the tax system, the challenge remains that the national treasury is running dry, with a revenue shortfall expected to reach 87 trillion won in 2023-2024. The parties must find ways to reduce the burden on the middle class while supplementing tax revenue. The expected annual revenue loss from the inheritance tax reform is estimated to be 2 trillion won. If the revenue shortfall continues, sustaining the inheritance tax relief will be difficult. A cautious approach that considers income redistribution and tax revenue is necessary.
Translated using generative AI and edited by Korea JoongAng Daily staff.
with the Korea JoongAng Daily
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