Tax Saving Tips for Inheritance and Gift Taxes: Reduce the Burden with Early Gifting

When it comes to inheritance and gifting, many people find themselves overwhelmed by the potential tax burden.

When it comes to inheritance and gifting, many people find themselves overwhelmed by the potential tax burden. However, there are ways to minimize this burden through early planning and gifting strategies. In this post, we will explore how early gifting can help you save on inheritance and gift taxes, and what key considerations you need to be aware of.

As the long Chuseok holiday comes to an end, many people return home after family gatherings with worries about inheritance and gift taxes. Without careful planning, the tax burden of passing on assets can be a major concern. Fortunately, the tax code offers several methods to reduce the impact of these taxes.

One of the most effective methods is early gifting. According to the tax law, any assets gifted more than 10 years before the inheritance date are excluded from the taxable base for inheritance. By dividing the transfer of assets into multiple smaller gifts, you can significantly reduce your tax burden. For example, if you gift 50 million KRW to an adult child every 10 years, over a period of 30 years, you could transfer up to 150 million KRW tax-free.

This strategy also works well for grandchildren, sons-in-law, or daughters-in-law. Since they are not direct legal heirs, any assets gifted to them are excluded from the taxable inheritance after just 5 years. While gifting to grandchildren may trigger a 30% surcharge due to “generation-skipping tax,” it can still be advantageous for wealthier families to avoid paying inheritance tax twice—first when passing assets to children, and again when passing them to grandchildren.

Another important consideration is when transferring real estate. It’s often beneficial to include any associated debts, such as mortgage loans or rental deposits, in the gift. This reduces the taxable base for the gift, thereby lowering the overall tax burden. Since the tax value of the asset is assessed based on its market value at the time of the gift, real estate that is expected to appreciate in value in the future should be gifted early to lock in a lower tax base.