Lim Kwang-hyun, a lawmaker from the Democratic Party, said on the 18th regarding the ‘unlimited deduction for spousal inheritance tax’ proposed by the People Power Party, “Removing the limitation on spousal deductions within the legal share would be more favorable to taxpayers.” He suggested abolishing the current spousal inheritance tax deduction limit of 3 billion won while maintaining the legal share limit of 3/7. In contrast, the People Power Party argues for eliminating both the deduction limit and the legal share limit, raising concerns that this could lead to significant tax revenue losses.
On that day, Lim issued a statement saying, “While easing the spousal inheritance tax deduction is a reasonable system, it must be pursued from the taxpayer's perspective through sufficient public opinion gathering and national consensus.” Specifically, he noted that if inheritance tax is abolished for amounts exceeding the legal share, as argued by the People Power Party, it could lead to adverse effects.
Currently, the People Power Party is pushing for a law that includes ▲the abolition of the spousal inheritance tax deduction limit ▲full deduction of the ‘actual inheritance’ without restrictions on legal shares. Kwon Young-se, the head of the emergency countermeasure committee, will propose the legislation. The current law allows for a minimum deduction of 500 million won and a maximum of 3 billion won, but they intend to eliminate the ‘3 billion won’ limit. Additionally, there is a provision that aims to completely remove the legally restricted share currently set at 3/7.
In contrast, Lim warned that if the legal share limit is abolished, it would likely lead to ▲an increase in inheritance tax for high-net-worth individuals ▲impair opportunities for children to inherit ▲the risk of being abused as a tax avoidance measure ▲and excessive tax revenue decline in the early stages of policy implementation. Lim, a former Vice Minister of the National Tax Service, has been proposing the so-called 'Lee Jae-myung-style tax burden relief laws,' including inheritance tax, income tax, and property tax.
According to data from Lim Kwang-hyun's office, which simulated an inheritance of 10 billion won, the total inheritance tax considering the second inheritance amounts to approximately 3.52 billion won under the current system. In contrast, if the Democratic Party's claim to abolish deductions within the legal share limit (500 million won to 3 billion won) is accepted, the tax would be about 3.47 billion won. If the People Power Party's proposal to completely abolish the deductions is implemented, the amount would rise to approximately 3.92 billion won.
The Democratic Party is also paying attention to Japan's spousal inheritance tax deduction system. In Japan, the legal shares are allocated equally between the spouse and the children if there are surviving children. Lim explained that when a spouse inherits within the legal share, the effective inheritance tax is almost nonexistent.
Concerns were also raised that abolishing the legal share could infringe on children's inheritance opportunities, potentially leading to disputes among heirs, such as claims for return of the reserved portion. Lim stated, “The delay in wealth transfer to the next generation could reduce investment and consumption opportunities, negatively impacting the domestic economy.”
Particularly, concerns about tax avoidance were also highlighted as an issue. When a spouse transfers the inherited property after inheritance, taxation is only possible on the capital gains after the date of inheritance. This means that there is a risk of losing the opportunity to tax the gains realized without capital gains tax and that spouses might inherit everything and devise various tax avoidance strategies.
Jin Sung-jun, chair of the Democratic Party's policy committee, also noted during a press conference on the same day, “While I fundamentally agree with the abolition of spousal inheritance tax, it could be exploited as a means for large-scale tax evasion. Measures must be devised to prevent this.” Since Lee Jae-myung agreed to the ‘abolition of spousal inheritance tax,’ reforms will proceed, but the ruling party's proposal to abolish the ‘legal share limit’ is hard to accept considering the possibility of tax evasion.