As the prices of real estate and other assets are rising rapidly, more and more taxpayers are worrying about inheritance and gift taxes. According to the National Tax Service, the number of cases subject to inheritance tax increased 82 percent from 6986 in 2017 to 12,749 in 2021. The total amount of inherited assets nearly doubled from 14.75 trillion won to 26.58 trillion won during the same period. The number of cases subject to gift tax also increased by 88%, from 166,337 to 275,592, and the amount increased from 24.5 trillion won to 53.8 trillion won.

In response to this significant increase in the number of taxpayers paying inheritance and gift taxes, the National Tax Service recently produced and distributed ‘Inheritance and Gift Tax Common Sense’ to provide information on gift and inheritance taxes.

Among them, we have collected and summarized some of the most confusing gift and inheritance tax questions from taxpayers.

The full text of the “Inheritance and Gift Tax Common Sense” can be found on the NTA’s website (www.nts.go.kr) under the “Inheritance and Gift Tax Common Sense” section of the Tax Filing Guide menu.

• Mr. A, an office worker, bought a ‘dream’ apartment last year with the money he saved during his working life, a loan from a bank, and financial support from his parents. In the process, Mr. A used a “borrowing certificate” and borrowed KRW 70,000 from his parents to cover the shortfall, as he heard that using a borrowing certificate is not a gift of property, but borrowed money, and the National Tax Service does not impose gift tax. Is this true?

“Mr. A’s loan certificate is not a good basis for avoiding gift tax. In the first place, monetary transactions between parents and children are not recognized as gifts but as borrowings. According to the IRS, not only does it have to be in the form and content of a normal loan note between third parties, but the child must actually pay back the interest and principal according to the terms of the note. In other words, even if there is a loan note, it cannot be considered a loan if it is only a form of borrowing to avoid gift tax. Also, if it is recognized as a borrowing, gift tax will not be charged immediately, but the National Tax Service will check the details of the borrowing certificate every year to see if the interest and principal are paid. If you don’t pay the promised interest or repay the principal at the end of the loan, it may not have been a loan in the first place and you may be subject to gift tax.”

There’s no tax on gifts to newlyweds.
but taxed when parents buy property

• Is it okay for a newlywed couple to buy a house with a gift?

“A wedding gift is a gratuitous gift, but there is no gift tax on normal gifts. There is also no gift tax on common wedding favors that parents buy for the couple when they get married. However, gifts of unusual amounts, luxury items, houses, cars, etc. are taxable. However, it depends on whose gift is being used to purchase the asset. If a newlywed couple buys an asset with a gift that is attributable to them, it’s fine, but if they buy an asset with a gift that is attributable to the head of the household (the parents), they may be subject to gift tax because they received a cash gift from their parents.”

Loan from child, repaid by parent
Treat the loan as a gift and tax it

• If a child takes out a loan and a parent pays it back for them, can it be gifted without tax?

“No, it isn’t. If the parent provides collateral안전놀이터, makes interest payments, and repays the principal, the loan is effectively a loan from the parent, even if the child borrowed it. It’s as if you, not your child, took out the loan in the first place, so you’ve given the loan to your child. Gifts of cash are also subject to gift tax, so if the child doesn’t have the money to pay the tax, the parent will have to pay the gift tax.”

• You can make a cash gift without paying gift tax by making a direct deposit for “living expenses.

“Ordinary transfers for living expenses to family members with no income are not subject to gift tax. However, cash transfers for living expenses to an income-earning family member may be subject to gift tax. Also, even if you actually paid living expenses to a family member with no income, you may be subject to gift tax if the funds were not used for living expenses but instead were used for savings or to purchase assets such as stocks or real estate.”

A grandparent gives a grandchild money to study abroad
Parents owe gift tax if they have income

• Education expenses paid by parents or grandparents for their children or grandchildren are not taxable.

“Education expenses, like living expenses, are not taxable if they are provided to a family member with no income. However, there are instances where grandparents provide education and study abroad expenses for their grandchildren even though the parents have the income to support the children, which may be subject to gift tax even though the grandchildren have no income.”

• How much money do you need to have to pay estate taxes?

“Inheritance tax is calculated by subtracting debts and inheritance deductions from the decedent’s estate. The exemption depends on who the heirs are. For example, if you have both a spouse and children, at least 1 billion won is deductible. This is why many people say that if you inherit less than 1 billion won, you won’t have to pay inheritance tax. Specifically, if you have a spouse and children, the basic deduction amount is 500 million won, the spousal deduction amount is 500 million to 300 million won, and the deduction amount is 1 billion to 3.5 billion won. If there is only a spouse, the basic deduction amount is 200 million won and the spousal deduction amount is 500 million to 300 million won, resulting in a deduction amount of between 700 million and 3.2 billion won. If you have only children, you can deduct a basic exemption of 500 million won.”

• Are there any other inheritances I should know about?

“You should check if the decedent gave you any property during his or her lifetime. This is because inheritance tax is calculated by combining the inheritance you receive at death with the property you gave to others during your lifetime. Not all gifts are added together, but only those given to heirs within 10 years and those given to non-heirs within 5 years. The gift tax paid at this time is deducted from the inheritance tax. You also need to know the retirement and death benefits of the decedent. It’s easy to think that most of the decedent’s retirement and death benefits are not part of the inheritance because the heirs receive them directly from the company or insurance company, but retirement and insurance benefits are included in the inheritance.”

• If I inherit a house, will I have to pay comprehensive real estate taxes as a second homeowner?

“For five years after inheritance, a single-family homeowner