Inheritance Tax Revision in Korea: A Comprehensive Analysis of the Proposed Changes and Their Impact
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*photo: Hankook daily
After 24 years, the government is set to revise the inheritance tax, proposing a reduction of the top tax rate by 10% and increasing the basic deduction while raising the child deduction from 50 million won per child to 500 million won. This revision is expected to decrease the annual inheritance tax revenue by 4 trillion won. Reflecting on the current concerns, it's true that many households worry about inheritance taxes. For instance, a family with an apartment in Gangnam worth 2.5 billion won, a spouse, and two children would have to pay about 440 million won in inheritance taxes. Without significant assets, such families might be forced to sell their home to afford the tax. However, under the revised law, with spousal, basic, and child deductions totaling 1.7 billion won, the tax due would be 170 million won, which is still not an insignificant amount.
To provide more flexibility and ensure housing stability for heirs, it would be prudent to adopt policies that allow for lower inheritance taxes on homes or apartments where the deceased resided, along with actively permitting installment payments over time. Maintaining the current inheritance tax structure could justify keeping the top rate at 50% for estates over 5 billion won, considering the shortfall in tax revenue. Moreover, lowering the tax rate for estates under 3 billion won from 40% (as per the amendment) to 20% could be a more realistic and reasonable approach, given the current apartment prices.
It is highly doubtful that this amendment will gain the cooperation of the opposition and be approved by the National Assembly. It also does not seem easy to dispel the suspicions of tax cuts for the wealthy and to obtain the agreement of the rational moderates.
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