The difference between inheritance tax and gift tax! Reasons to donate this year
Inheritance tax and gift tax are taxes that arise from inheriting property, but as the amount varies depending on various circumstances such as the time of inheritance, market tax, and policy, a wise tax-saving plan is necessary. As there are many concerns about which of inheritance tax and gift tax is advantageous due to complex issues such as recent interest rate hikes, economic recession, and comprehensive real estate tax, we will inform you of each deduction amount, tax rate, and taxable subject.
What is inheritance tax and gift tax?
1. Inheritance tax
Inheritance tax is a tax levied on the property when the owner (decedent) of the property passes away free of charge to a family member or relative. In other words, it is a tax on property designated by a will or inherited by family or relatives.
In the absence of a will, the order of inheritance is 1st for spouse and lineal descendents, 2nd for lineal ascendants and spouses of the deceased, 3rd for siblings, and 4th for blood relatives within 4th degree.
2. Gift tax
Gift tax is a tax that must be borne by the person receiving the gift (donee) when property is gifted from another person (donor).
Inheritance tax and gift tax are similar in that property is inherited free of charge, but there is a difference in that inheritance occurs due to the death of the property owner, and gift tax arises due to the gift of the property owner.
Inheritance Tax & Gift Tax Tax Rate and Subject to Tax
1. Inheritance Tax Rate & Gift Tax Rate
Tax base tax rate Progressive deduction amount
10% below KRW 100 million –
500 million won or less 20% 10 million won
1 billion won or less 30% 60 million won
3 billion won or less 40% 160 million won
Over 3 billion won 50% 460 million won
The tax rates and progressive deductions for inheritance tax and gift tax are all the same.
2. Subject to taxation
1) Subject to inheritance tax
In the case of inheritance tax, the scope of inheritance tax differs depending on whether the person is a resident or non-resident as of the date of commencement of inheritance.
If the deceased (inheritor) is a resident: all inherited property
If the deceased (inheritor) is a non-resident: all inherited property in Korea
2) Subject to gift tax
In the case of gift tax, there are differences in the scope of taxation and who is obligated to pay gift tax, depending on whether the recipient who inherits the property is a resident or a non-resident as of the date of gift.
If the recipient is a resident: The recipient pays for all donated property in Korea and abroad. However, if the party is not a specially related person, the obligation to pay gift tax is exempted if the gift tax is imposed or exempted by foreign law on the gifted property.
If the recipient is a non-resident: The recipient pays for all donated property in Korea. However, all donated property outside the country, donated by a resident, must be paid by the donor.
Beneficiary tax scope Person obligated to pay gift tax
Residents Donees of all donated property at home and abroad
Non-resident All donors of donated property in Korea
Donor of all gifted property outside of Korea that was gifted from a resident
Judgment between residents and non-residents (inheritance tax and gift tax are the same)
Inheritance Tax & Gift Tax Report and Payment Deadline
1. Inheritance tax return deadline
The deadline for reporting and paying inheritance tax also differs depending on whether the decedent is a resident or a non-resident, as is the subject of taxation. In the case of a resident, the payment must be made within 6 months from the end of the month in which the inheritance commenced. If the ancestor and all heirs are non-residents, the report must be made within 9 months from the end of the month in which the inheritance commences.
The date of commencement of inheritance refers to the date of death of the ancestor or the date of declaration of disappearance if inheritance has commenced due to the declaration of disappearance.
2. Gift tax return due date
Gift tax must be reported within three months from the end of the month in which the date the property was donated belongs. In other words, the obligation to pay gift tax arises from the date of delivery of the property, not from the date of conclusion of the contract, etc.
Which is better for inheritance tax or gift tax? (Reasons for gifting this year)
As explained earlier, inheritance tax and gift tax are different depending on each person’s circumstances, so we cannot say for sure which one is more advantageous.
However, if you are thinking of gifting, please think about what you do before this year passes. As house prices began to plummet due to the recent interest rate hike, there is an increasing movement to pass on to children instead of selling real estate at a low price.
In particular, from next year, the tax base for calculating acquisition tax is expected to increase from the standard market price to the recognized market price. You may ask what the relationship between gift tax and acquisition tax is, but if property is acquired for free by gift, etc., the person who inherits the property is, in principle, obligated to pay gift tax and acquisition tax.
Due to the nature of the market price, it is expected that the tax will be higher than when the standard market price is applied, and the higher the real estate price, the greater the difference in tax. .