Inheritance Tax Reform on the Horizon: Korea to Introduce New Law as Early as Next Year
Government to Introduce Inheritance Acquisition Tax System
The government is set to introduce an inheritance acquisition tax system, replacing the current inheritance tax system, starting next year. The new system, also known as the “inheritance acquisition tax,” will tax the inheritance portion inherited by each heir, rather than the total amount of the deceased’s estate.
Deputy Prime Minister and Minister of Strategy and Finance Choi Sang-mok announced the plan at a press conference on the 9th, stating that the government will submit the inheritance tax bill to the National Assembly in the first half of next year. The current inheritance tax law levies tax on the total amount of the deceased’s estate, with the heirs dividing the inheritance tax. In contrast, the inheritance acquisition tax system will tax each heir’s inheritance separately.
The Ministry of Strategy and Finance is reviewing the method of calculating the tax base and the change in the deduction amount for each heir to introduce the inheritance acquisition tax. The tax base calculation will consider various methods, including wills, statutory inheritance shares, and agreement division. The ministry is also reviewing the civil law and property division practices to reflect the actual division results as much as possible.
Regarding the deduction by heir, the government plans to abolish the current lump-sum deduction of 500 million won. Instead, the deduction for spouses and children will be included in the inheritance tax bill, including the National Assembly discussion process.
The inheritance acquisition tax system has been adopted by 20 out of 24 OECD member countries that have an inheritance tax, excluding Korea, the United States, the United Kingdom, and Denmark. The system allows for the consideration of each heir’s ability to bear the tax burden, as the tax amount is determined based on the property inherited by each heir.
However, there are concerns that the introduction of the inheritance acquisition tax system may lead to a “tax cut for the rich” if the tax brackets or deduction system are not reorganized to be tax-neutral. This is because the number of heirs subject to the progressive tax rate is reduced, resulting in lower tax revenue. Additionally, tax enforcement may become more challenging, as there are concerns that false division reports may become prevalent to reduce tax burdens.
The government must carefully consider these concerns and ensure that the introduction of the inheritance acquisition tax system is fair and equitable for all taxpayers.