The bill to raise the spouse deduction limit for inheritance tax has fallen through. President Lee Jae-myung personally ordered the legal revision, but it was blocked by opposition from the Ministry of Economy and Finance and the Democratic Party of Korea.
The Strategy and Finance Committee's tax subcommittee is scheduled to hold a plenary session on the 30th to handle the tax law revisions. However, it was confirmed that the highly watched plan to overhaul the inheritance and gift tax (IGT) has been left out of the items to be handled. Park Soo-young of the People Power Party, who serves as the subcommittee chairperson, told reporters, "Both the Ministry of Economy and Finance and the Democratic Party have said we should not discuss the IGT revision bill this session and should make it a long-term task," adding, "Even though there was the president's comment, if both sides oppose discussing it this time, isn't that unacceptable?"
The president's IGT remarks Park mentioned were made at the Sept. 11 press conference marking the 100th day in office. At the time, the president was asked about an IGT overhaul and said, "I cannot agree with generally lowering inheritance taxes," adding, "However, I think it is necessary to raise the deduction limits for inheritance tax."
Under the current inheritance tax, the deduction limit is 1 billion won, consisting of a 500 million won standard deduction plus a minimum 500 million won spouse deduction. The Democratic Party of Korea last year proposed an overhaul to raise the inheritance tax deduction limit to a total of 1.8 billion won by increasing the standard deduction to 800 million won and the minimum spouse deduction to 1 billion won.
The president said, "One day the homeowner dies and the spouse and children are left, and if the home price exceeds 1 billion won, they have to pay taxes," adding, "If they don't have money, they have to sell the house and leave, which is too cruel." He continued, "It's already unfair that a family member died, and if they are suddenly forced out to pay taxes just because someone died, that makes no sense," adding, "Let's raise the amounts for the standard deduction and the spouse deduction so there is no tax up to 1.8 billion won." At the press conference, the president told Policy Deputy Minister Kim Yong-bum, "Let's handle it this time," and Kim replied, "I will consult with the policy committee."
Separately, several proposals to revise the inheritance tax deduction limits submitted by lawmakers from both the ruling and opposition parties were brought to this tax subcommittee. The bill by lawmaker Kim Eun-hye would raise the basic deduction from the current 200 million won to 500 million won and the standard deduction from the current 500 million won to 1 billion won. Lawmaker Ahn Do-geol's bill would raise both the minimum spouse deduction and the standard deduction to 750 million won each. In addition, lawmakers Kweon Seong-dong, Park Sung-joon, Lee Jong-uk, and Jung Il-young introduced bills to increase inheritance deductions.
Separately, there were also bills to raise the cohabiting home inheritance deduction—which deducts up to 600 million won when a child has lived with a parent as a one-household, one-home arrangement for 10 years or more—to up to 900 million won, or to ease the cohabitation period requirement to 8 years.
Expectations were high for an IGT overhaul when discussions on the tax law revisions began, but once talks started, both the government and the ruling party reportedly backed away. The Ministry of Economy and Finance (MOEF) had significant concerns about revenue losses. According to estimates by the National Assembly Budget Office, depending on the deduction-limit overhaul, the revenue loss over five years would reach up to 9.5435 trillion won (under lawmaker Lee Jong-uk's bill). Lee's bill would raise the child deduction from the current 50 million won to 500 million won and raise the deductions for minors and people with disabilities from the current 10 million won to 20 million won.
Under lawmaker Kim Eun-hye's bill, the five-year revenue loss would reach 6.0683 trillion won, and under lawmaker Ahn Do-geol's bill, it would reach 2.5704 trillion won.
Lawmaker Park Soo-young said, "On raising the inheritance tax deduction limits, the MOEF opposed it, saying the revenue loss would be too large," adding, "There were bills from lawmakers of both parties to raise items like the spousal deduction and the basic deduction, but when you add up all the revenue losses, the MOEF claimed it would be 20 trillion to 30 trillion won, and it was hard to accept that."
Within the Democratic Party, there was reportedly concern about criticism of a tax cut for the wealthy. While there are indeed unfair cases the president mentioned, they said they could not ignore that inheritance tax still applies mostly to a small group of wealthy people. In fact, as of 2024, only 5.9% of all decedents were subject to inheritance tax.
Within the Democratic Party, apart from introducing separate taxation for dividend income in this round of tax law revisions, they reportedly decided not to include content that could be criticized as a tax cut for the wealthy. A Democratic Party official said, "We are not abandoning an IGT overhaul, but proposing to consider it comprehensively later along with revisions to the comprehensive real estate tax," adding, "For now, since we need to bolster the revenue base, opinions emerged to leave it as a task for long-term review."