The finance ministry aims to enforce the revised tax system in 2028. — The Korea Herald
SEOUL: South Korea plans to replace its decades-old estate tax system with an inheritance tax, easing tax burdens on beneficiaries in an effort to ensure tax fairness and align with global standards, the finance ministry says.
South Korea currently imposes an estate tax, which is levied on the net value of a deceased person’s whole estate. In contrast, most advanced economies levy an inheritance tax, which requires beneficiaries, such as spouses and children, to pay taxes based on the assets they each inherit.
The finance ministry aims to enforce the revised tax system in 2028, with plans to submit the proposed changes to parliament later this year. A two-year period from 2026 to 2027 will be allocated to establish the necessary taxation system and supplementary legislation.
“The Organisation for Economic Cooperation (OECD) and Development and the International Monetary Fund have assessed that an inheritance tax is more desirable in terms of tax fairness and wealth redistribution,” Jeong Jeong-hoon, a finance ministry official, said.
Among the 38 member countries of the OECD, 20 out of the 24 nations that maintain inheritance taxation have adopted the inheritance tax system. Only four countries, including South Korea, Britain, Denmark and the United States still impose an estate tax, according to the ministry.
Jeong added that taxing individuals based on the amount they inherit improves tax equity and enhances the effectiveness of deductions by applying them to each taxpayer individually.
Under the current five-tier system, the top tax rate stands at 50% for inherited assets exceeding three billion won (US$2.1mil).
The rate rises to 60% for those inheriting shares in large corporations.
For example, if assets worth three billion won are inherited by a spouse and two children, with each receiving one billion won, a total of 440 million won in tax is levied under the current system.
Under the proposed revised system, the tax burden would be significantly reduced.
Each child would pay 90 million won in taxes, while the spouse would be exempt, as the tax base and deduction rates would be applied individually based on their respective inherited assets.
The ministry said the minimum personal deduction will be set at one billion won.
If the total personal deductions fall below this amount, the shortfall will be applied as an additional deduction for direct descendants and ascendants who are heirs. — The Korea Herald/ANN
