The government has decided to promote the transition of the inheritance tax system from the current estate tax to the estate acquisition tax. This new approach will not tax the estate passed on by the deceased but rather tax the individual inheritance received by each heir. This initiative aims to alleviate some of the tax burden on heirs, considering issues such as the growing economy and situations where spouses are forced to sell their homes after the death of a partner.
On the 12th, the Ministry of Economy and Finance announced a plan for the introduction of an estate acquisition tax to rationalize the inheritance tax system, stating that "we will pursue the transition to estate acquisition tax starting in 2028 to improve tax fairness and the effectiveness of deductions."
Inheritance tax is divided into the estate tax system that bases taxation on the entirety of the inherited estate left by the deceased and the estate acquisition tax system that taxes based on the amount inherited by individual heirs. According to the Ministry of Economy and Finance, most member countries of the Organisation for Economic Co-operation and Development (OECD) that have inheritance taxes adopt the estate acquisition tax. The International Monetary Fund (IMF) also evaluates that "the estate acquisition tax reflects the characteristics of heirs and can induce the distribution of wealth."
◇ 71% of citizens support the reform of the estate acquisition tax… "It enhances tax fairness"
The government has decided to introduce the estate acquisition tax system to enhance tax fairness. Under the current system, there are cases where high tax rates apply compared to the inheritance received by each heir. The inheritance tax rates are ▲ 10% for amounts up to 100 million won ▲ 20% for 100 million won to 500 million won ▲ 30% for 500 million won to 1 billion won ▲ 40% for 1 billion won to 3 billion won ▲ 50% for amounts over 3 billion won, resulting in a progressive tax structure. According to current law, if five children each inherit 1 billion won, totaling 5 billion won, they have to pay four times more in taxes compared to the case where one child alone receives 1 billion won.
The significant increase in the number of people subject to inheritance tax due to rising real estate prices is also a background for the reform of the inheritance tax. According to the Ministry of Economy and Finance, the number of taxable individuals surged from 1,400 in 2000 to 19,900 in 2023, an increase of 14.4 times. During the same period, the ratio of taxable individuals increased 10.4 times, and the share of inheritance tax in national tax revenue rose 5.1 times.
Given this situation, the majority of citizens also empathize with the reform of the inheritance tax and the transition to the estate acquisition tax. In a survey conducted by the Ministry of Economy and Finance of 10,000 citizens, 82.3% felt the reform of the inheritance tax was necessary, and 71.5% responded that a transition to the estate acquisition tax was needed.
◇ Child deduction amount increases from 50 million won to 500 million won… multi-family-friendly deduction method
The government plans to revise the joint tax payment method in the inheritance tax law through this amendment proposal. Currently, the entire inheritance tax is paid jointly by the heirs and the recipient of a bequest (a person who receives a legacy according to a will).
Due to this, there are cases where a spouse who inherits a large amount pays the inheritance tax for their children without it being counted as a gift tax, or where a surviving spouse and children have to cover the inheritance tax received by a concubine. Once transitioned to the estate acquisition tax, each heir will have to bear tax liability according to their individual inheritance. Joint tax liabilities among heirs will only be enforced in certain cases, such as when securing tax claims is difficult.
The government has also decided to change the current bulk deduction and base deduction structure. Heirs can currently choose to deduct the larger amount between the ▲ bulk deduction (500 million won) and the ▲ basic deduction (200 million won), along with a personal deduction (for children, minors, seniors, disabled individuals, etc.). However, since the child deduction amount is limited to 50 million won per person, if there are fewer than seven children, many tend to choose the bulk deduction over the other options.
The government has decided to absorb the bulk deduction and base deduction systems into a deduction for each heir and raise the child deduction from the existing 50 million won to 500 million won. This means that multi-family households will see an increase in total deduction amounts. With the increase in deduction amounts, heirs will not only enjoy a reduction in the taxes they need to pay, but they will also be able to fully benefit from personal deduction benefits.
For example, if two siblings, A aged 14 and B aged 9, inherit property, the existing maximum deduction amount is the bulk deduction of 500 million won. However, if the amendment is applied, basic deductions (500 million won each) and additional deductions for minors will apply, allowing for a total of 1.15 billion won to be deducted.
◇ Spousal deduction amount increases to a minimum of 1 billion won… additional deduction if below the deduction amount
The government has also decided to rationalize the spousal deduction. Under the current estate tax system, spouses receive a full deduction of 500 million won from the total inherited estate, regardless of the actual amount inherited. The amendment proposal includes a plan to fully exempt inheritance tax if the spousal inheritance is below 1 billion won, regardless of the legal portion of inheritance. For example, if a spouse inherits a jointly owned apartment valued at 2 billion won, the tax will be fully exempt.
The government will also establish a minimum threshold for personal deductions. Considering that the current spousal deduction (500 million won) and bulk deduction (500 million won) set the tax-exempt threshold at 1 billion won, the government plans to set the minimum personal deduction threshold at 1 billion won. If the personal deduction is less than 1 billion won, the corresponding shortfall will be additionally deducted for children.
The government plans to prepare measures against concealment of partitioning and indirect inheritance to prevent tax avoidance. The period for exercising national tax collection rights relating to disguised partitioning will be extended from 10 years to 15 years. If the burden of inheritance tax is reduced through indirect inheritance, additional taxation will be imposed. Passing the inheritance to a daughter or son within five years after transferring the inheritance tax benefits to in-laws is a typical example of indirect inheritance.
Meanwhile, this reform plan excludes provisions for lowering the top tax rate and abolishing the spousal inheritance tax. Jeong Jeong-hoon, head of the Tax Policy Bureau of the Ministry of Economy and Finance, noted, "I believe that lowering the top inheritance and gift tax rates, abolishing surcharges, expanding family business inheritance, and supporting value-up initiatives are all necessary," and stated, "We plan to continue promoting this based on social consensus through a separate public consultation process." He added that "the bill related to the estate acquisition tax will be submitted to the National Assembly in May after collecting opinions through public notices and hearings," and said, "If the bill passes, it is scheduled to take effect starting in 2028."