Unlocking a Secure Future: Expert Insights from Attorney Cho Ok-ah on Safeguarding Korean Assets for Australian-Based Children

Unlocking a Secure Future: Expert Insights from Attorney Cho Ok-ah on Safeguarding Korean Assets for Australian-Based Children

September 19, 2024 Catherine Williams - Chief Editor Business

Key Points

  • Korea, World’s Highest Inheritance and Gift Taxes, Up to 50%
  • Australia, no gift tax or inheritance tax, stamp duty or capital gains tax on sale proceeds
  • Australian residents are non-residents under Korean tax law… Consider transferring assets to Australia

PD Na Hye-in: According to a recent report by British investment and immigration consulting firm Henley & Partners, Korea is expected to have the fourth largest number of millionaires leaving their country. Following China with 15,200, the UK with 9,500, and India with 4,300, it is expected that 1,200 millionaires will leave Korea. A millionaire is defined as someone with assets worth more than 1 million USD, 1.49 million AUD, or 1.38 billion KRW. The high inheritance tax in Korea is cited as the main reason for this. How can we safely pass on assets in Korea to our children in Australia? We will find out more with Ok-ah Cho, a Korean lawyer at Sydney-based law firm H&H. Ok-ah Cho is connected. Hello.Attorney Cho Ok-ah: Yes. Hello. This is Jo Ok-ah.PD Na Hye-in: Attorney Cho Ok-ah is a Korean lawyer. I remember you were interviewed on our SBS Korean program. But for those of you who are listening to this broadcast for the first time, please introduce yourself briefly.Attorney Cho Ok-ah: Yes, first of all, thank you so much for giving me this opportunity to be on this show. And as you just mentioned, I am currently in Australia providing advice on Korean law with a Korean lawyer’s license. I mainly provide advice to individual clients or companies who are doing business or investing in Australia or Korea. Recently, as we discussed today, I have been doing a lot of work related to inheritance.PD Na Hye-in: Yes. As I mentioned earlier, many wealthy Koreans are leaving Korea because of the high tax rates on gifts and inheritance. Are Korea’s gift and inheritance taxes really that high compared to the rest of the world?

Attorney Cho Ok-ah: Yes, I think so. So, as you just mentioned, there is a gift tax and inheritance tax revision bill in Korea, but it is still pending whether it will be passed by the National Assembly. So, based on the current standard, up to 50% of the property that is inherited or gifted is taxed. So, Japan is generally known as the world’s number one with a gift tax rate of up to 55%. In fact, the highest tax rate in Japan is about 4 billion won in Korean currency. So, it seems to be different from Korea, which imposes the highest tax rate based on 3 billion won. Also, in the US, there are differences by state, but the highest tax rate is 40%. However, in the US, the amount deducted when an inheritance or gift is made is about 16 billion won in Korean currency. So, compared to Korea, the difference is so big that, if you think about it comprehensively, such as tax rates and deduction amounts, you can say that Korea’s gift or inheritance tax rate is the highest.

PD Na Hye-in: I see. On the other hand, I often hear that Australia has no gift tax or inheritance tax. Is that true?Attorney Cho Ok-ah: Yes, that’s right. So in Australia, when a gift or inheritance is made, there is no gift tax or inheritance tax on the gift or inheritance itself. However, if you receive a gift or inheritance of real estate from your parents, you have ultimately acquired that real estate, so you have to pay a tax called the stamp duty or capital gains tax if there is an actual sale price.PD Na Hye-in: Yes. In the end, it is recognized as income. Regarding inheritance.Attorney Cho Ok-ah: Yes, that’s right.PD Na Hye-in: Especially, many people will face this inheritance issue after their Korean parents pass away. If they try to handle the inheritance issue at that time, there could be a lot of conflict, right?Attorney Cho Ok-ah: Yes. I briefly mentioned this in a previous interview. First of all, if your children are overseas, such as in Australia, they cannot directly take care of all the assets in Korea, so there are many cases where they change the title of their parents’ assets with other siblings in Korea, or they buy and sell without consulting their children overseas. In the meantime, if your parents pass away, the inheritance occurs at the same time as your parents’ death. However, if the title has already been transferred or something like that, unless there are special circumstances, it is not easy to change it back to the heir’s name. And even if it were possible, since the dispute between heirs is a dispute between family members, it often hurts feelings and delays.PD Na Hye-in: Yes, that’s right. It happens often that you lose not only money but also family ties. In Australia, you often hear this. You can meet people who say that the inheritance issue in Korea is complicated, so it’s better to just give up. What are the typical cases?Attorney Cho Ok-ah: Yes. I think there are actually quite a few cases like that. There are also cases like that when I receive inquiries for consultation. If the assets are in Korea, especially in the case of real estate, you have to file a lawsuit in a Korean court where the real estate is located. Therefore, there may be physical difficulties in actually filing a lawsuit or engaging in some kind of legal dispute, and if your parents have already passed away, it is often difficult to find related materials or facts. So, for example, even if your parents wrote a will in advance, what if another sibling in Korea now presents a different will and says that the will is incorrect and that the will I have is the most recent.Attorney Cho Ok-ah: If you claim that it was recently written, or if you present a loan receipt while claiming that there was in fact a financial loan relationship, or if you claim other facts in this way, then the case often becomes complicated because you have to verify the facts through handwriting analysis or other methods.PD Na Hye-in: I think it’s going to be difficult.

Attorney Cho Ok-ah: Yes. And if you think about it the other way around, I think there are a lot of cases like this. So, if your parents in Korea have real estate in Australia, then in this case, you have to proceed with the case in an Australian court. Since the real estate is in Australia, in this case, Korean law is sometimes applied to inheritance-related matters, so if you don’t know the relevant Korean law, the lawsuit may go in a difficult direction.

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Attorney Cho Ok-ah said that if there are assets being transferred to Australia, it is important to establish legal relationships in advance so that Australian law can apply. Source: Supplied / Bella Cho

PD Na Hye-in: Yes. So what can we do to avoid these high inheritance taxes and complex inheritance disputes as much as possible?Attorney Cho Ok-ah: Yes. So the most important thing is to organize your assets in advance. For example, if your children live in Australia, they are considered non-residents under tax law. So in this case, you need to organize your assets in advance so that Korean tax laws do not apply. You may have heard of the concept of non-residents under tax law that I just mentioned, but depending on the situation, a decision is made by considering various comprehensive factors. So, to put it simply, if I am an Australian permanent resident or citizen, all my family members who live with me are in Australia and I am making a living in Australia, I am now a non-resident under Korean tax law, so Korean tax laws do not apply. Of course, there are some exceptions, so a detailed review is needed depending on the situation. However, among the many cases I have advised, if you transfer assets to Australia a little early and have children, there is no gift or inheritance tax in Australia. So, in Korea, there are many unfortunate cases where we could have prevented things like inheritance tax, which we now have to pay to the National Tax Service, in advance. I don’t know if prevention is the right word. We could have prevented things.PD Na Hye-in: Yes. In fact, inheritance tax and gift tax are high in Korea, so it would be much more advantageous to be treated as a non-resident under tax law.Attorney Cho Ok-ah: Yes, that’s right.PD Na Hye-in: However, if your parents are still living in Korea and need money to live, and you don’t want to give them all your assets in advance, there are bound to be cases like this. In that case, what methods can you use?Attorney Cho Ok-ah: Yes, that’s right. So in fact, for the reasons you just mentioned, it seems like it’s often difficult for parents to sort out their assets while they’re still alive. So for example, parents say there’s no inheritance tax in Australia, so they’ve transferred all their assets. But in fact, in many cases, the parents involved are more comfortable living in Korea than in Australia, so they want to stay in Korea and say they need living expenses, or if their children receive all their assets and then ignore their parents, there are actually cases where they’re worried about that.PD Na Hye-in: actually Don’t you often hear advice like that around you? You should never give everything to your children…Attorney Cho Ok-ah: Yes, that’s right. That’s why it’s important to set up a legal relationship in advance so that Australian law can be applied if there is property transferred to Australia. That’s why we’ve been talking about this, but if Australian law is applied, there is no gift tax, so you don’t have to pay a huge amount of tax in Korea anymore.PD Na Hye-in: As I mentioned briefly earlier, Korea is also aware of this problem, so a bill to lower the gift tax and inheritance tax rates is being promoted. How about waiting a little bit? Would waiting a little bit help our fellow Koreans?Attorney Cho Ok-ah: Yes. As we mentioned earlier, there is a revision to the Korean tax law that lowers the top tax rate from 50% to 40%. And there is a revision that increases the deduction bracket to 500 million won. But even if the revision is passed in September, the current deduction will only apply to children who live in Korea. So unfortunately, children who live in Australia are non-residents under tax law, as I mentioned earlier. So since they are non-residents, it seems like the revision will not apply. So whether the revision is passed or not, it seems to have nothing to do with me residing in Australia.PD Na Hye-in: Okay. Okay. Attorney Cho Ok-ah, lastly, what advice would you give to those who own property in Korea?Attorney Cho Ok-ah: Yes, so of course it is a law, but it is only applied to cases where the law can be applied now. So if Korean tax law is applied, then of course I have to pay gift tax or inheritance tax in Korea. There is no way to avoid this. So if I have real estate in Australia and have to pay taxes in Korea, I have to sell the real estate and pay the taxes. However, if we set up the legal relationship in advance so that Australian law can be applied before the law is applied, then I won’t have to pay taxes in Korea by selling the real estate in Australia. So I think it is absolutely necessary to take enough time to organize the legal relationship related to property or inheritance in advance. So if I had prepared a little bit in advance, I could have reduced the tax by tens of millions or hundreds of millions or hundreds of millions, but I feel a bit sorry that I have to pay it now. So I think it would be good to keep that in mind.PD Na Hye-in: Yes. It is necessary to plan and prepare for inheritance and gifts in advance. We talked about safe inheritance and gift methods with Korean lawyer Cho Ok-ah of H&H Law Firm. Thank you for the good information today, lawyer.

Attorney Cho Ok-ah: thank you.