Inheritance tax ‘major surgery’ after 75 years… The biggest beneficiary

On the 12th, the government announced a reform plan to change the inheritance tax system from ‘heritage tax’ to ‘heritage acquisition tax’ as early as 2028. This is considered the first major reform in 75 years since the enactment of the Inheritance Tax Act in 1950.

The reform plan was promoted to △ alleviate the burden of excessive progressive taxation △ improve the effectiveness of deductions △ rationalize the scope of taxation. The key is to tax individual heirs only on the property they actually inherited. In the case of the existing estate tax, the tax was levied based on the entire inherited property of the deceased (deceased person). On the other hand, in the case of inheritance acquisition tax, equity is improved because each heir is taxed according to the acquired property.

For example, let's imagine that you pass on 1.5 billion won to each of your three children, with 500 million won in equal amounts. As it stands, the three children must jointly pay inheritance tax on 240 million won. On the other hand, if the revised inheritance tax is applied, the basic deduction is applied to the '500 million won' each of the three people will receive, rather than the total inheritance amount of '1.5 billion won', so the three heirs will inherit the full 500 million won each without separate inheritance tax.

In this way, the change system begins with drastically lowering the tax burden on the majority by reducing the obligation to jointly pay taxes. To this end, it must be reorganized with a focus on ‘necessary systems’. The basic tax credit system is maintained as is to minimize market confusion and shock caused by system conversion. It is designed to enable fairer and more reasonable taxation in the mid to long term.

Also worth noting is the strengthening of the effectiveness of the personal deduction system. Families with multiple direct children, those with assets worth 500 to 300 million won, and heirs with a high proportion of financial assets are expected to be the biggest beneficiaries. This is because the basic deduction for children has been adjusted to reflect actual conditions, and the system has been supplemented so that spouses can receive deduction benefits within the scope of their actual inherited assets. As a result, the key is to ensure that the inheritance tax burden does not substantially arise when assets below a certain standard are transferred to family members. For example, if you inherit 1 billion won to your spouse and 500 million won to your children, the entire amount can be transferred without tax.

When conducting inheritance-related consultations, we receive many inquiries from corporate officials. This is because the scale of inheritance is significant and the system is complex. In this amendment, the existing material deduction system, such as family business inheritance deduction, financial property deduction, and cohabitation housing inheritance deduction, is maintained. This decision takes into account the tax burden on small and medium-sized businesses that have been operating for a long time or on real asset holders, and appears to be intended to ensure that the economic foundation is not shaken during the system transition process.

Measures to improve tax payment convenience are also being taken. Even if the division of inherited property is not completed within the reporting deadline, a method of postponing the division deadline for up to 9 months and allowing revision of the tax amount according to the division details confirmed within that period is being considered. This is a reasonable improvement plan that takes into account cases where discussions on division of inherited property are realistically delayed.

Attorney Ja-young Yoon of Daeryun Law Firm said, “In addition, measures to respond to the possibility of tax avoidance have also been included. Various complementary measures will be put in place, such as extending the period of exclusion from imposition of false division (the period during which national or local taxes must be exercised) from the current 10 years to 15 years and establishing a special case for comparative taxation for round-trip inheritance. In particular, the taxation method is expected to be overhauled for round-trip inheritance using for-profit corporations. “It is necessary to proceed with legal assistance from tax and inheritance experts.”

[Global Epic CP Lee Soo-hwan / lsh@globalepic.co.kr]

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