🚨 Race to Cut Inheritance Tax to Win Moderate Voters: Consensus on Spousal Inheritance Tax Abolition, Top Tax Rate Still Controversial
Today Korean Economic News | 2025.04.17
📌 Ruling and Opposition Parties Compete with 'Inheritance Tax Reduction' Pledges Ahead of Election
💬 With the June 3 early presidential election approaching, candidates from both ruling and opposition parties are presenting inheritance tax reduction pledges. The ruling party candidate promised to abolish the spousal inheritance tax and lower the maximum tax rate, while the opposition candidate agreed with abolishing the spousal inheritance tax but focused on expanding inheritance tax deductions for family businesses. Economic experts analyze these as "pledges targeting moderate and middle-class voters." All eyes are on how the competition between the two parties over inheritance tax will affect the election outcome.
1️⃣ Easy Understanding
As the June 3 early presidential election approaches, candidates from both parties are presenting inheritance tax reduction pledges. Let's take a simple look at what inheritance tax is and what the candidates are proposing.
Inheritance tax is a tax imposed on a person (heir) who inherits property after someone dies. The current inheritance tax in Korea applies a 10-50% tax rate on property after excluding the basic deduction of 500 million won plus additional deductions. In particular, Korea's maximum inheritance tax rate (50%) is the second highest among OECD member countries, just behind Japan (55%).
Ruling party candidate Kim presented "complete abolition of spousal inheritance tax, reduction of the maximum tax rate from 50% to 40%, and expansion of family business inheritance deductions" as key pledges. The abolition of spousal inheritance tax is based on the perception that it is unreasonable to impose taxes on the surviving spouse when one spouse dies, as the property was built together.
In contrast, opposition candidate Lee stated, "I agree with abolishing the spousal inheritance tax, but lowering the maximum tax rate is a tax cut for the rich," expressing opposition. Instead, he proposed "expanding the limit for family business inheritance deductions for small and medium-sized enterprises from the current 50 billion won to 100 billion won, and shortening the post-management period from 10 years to 5 years."
Both candidates principally agreed to change the inheritance tax method from the current 'estate tax method' to an 'acquisition tax method.' The estate tax method applies tax rates to the entire property of the deceased, while the acquisition tax method applies tax rates individually to the property received by each heir.
The reason inheritance tax has emerged as a major issue in this election is that recent real estate price increases have caused the general middle class to feel the burden of inheritance tax. Particularly, as apartment prices in the metropolitan area have risen significantly, the perception that 'even ordinary people have to pay inheritance tax' has spread. Both ruling and opposition parties are seen to have presented inheritance tax reduction pledges to capture the votes of the middle class and moderate voters.
2️⃣ Economic Terms
📕 Inheritance Tax
Inheritance tax is a tax imposed on a person (heir) who inherits property from a deceased person.
- The current Korean inheritance tax applies a progressive tax rate of 10-50% on property after deducting the basic 500 million won plus additional deductions.
- It has the second highest maximum tax rate (50%) among OECD countries, just behind Japan (55%).
📕 Spousal Inheritance Deduction
Spousal inheritance deduction is a deduction system applied when a surviving spouse inherits property from the deceased spouse.
- Currently, Korea allows a spousal inheritance deduction of up to 3 billion won.
- The deduction applies to the smaller amount between the actual inherited property value and the property value within the legal inheritance share.
📕 Family Business Inheritance Deduction
Family business inheritance deduction is a system that reduces the inheritance tax burden when small and medium-sized business owners pass their business to successors.
- Currently, deductions of up to 50 billion won can be received depending on the period the business has been operating.
- To receive the deduction, conditions such as maintaining the business type, employment, and ownership for 10 years after inheritance must be met.
📕 Estate Tax Method and Acquisition Tax Method
The estate tax method applies tax rates to the entire estate of the deceased, while the acquisition tax method applies tax rates individually to the property acquired by each heir.
- Korea currently adopts the estate tax method, applying tax rates after combining all property of the deceased.
- The acquisition tax method is adopted in countries like the United States and the United Kingdom, imposing taxes individually according to the property each heir receives.
3️⃣ Principles and Economic Outlook
💡 Inheritance Tax Reduction and Economic Impact
Let's analyze the impact of inheritance tax policy changes on the economy.
First, inheritance tax has functions of wealth transfer and income redistribution. Inheritance tax originally aims to appropriately control the intergenerational transfer of wealth to alleviate economic inequality. Excessively high inheritance tax rates can weaken entrepreneurship and lead to overseas asset outflows, but if too low, there is concern that wealth gaps may become entrenched. According to Korea Development Institute (KDI) analysis, inheritance tax revenue is about 3 trillion won annually, less than 1% of total tax revenue, but plays an important role in mitigating wealth concentration. Lowering the maximum tax rate from 50% to 40% is expected to reduce annual tax revenue by about 500 billion won, with benefits concentrated mainly on ultra-high net worth individuals. In contrast, abolishing the spousal inheritance tax would benefit all classes, but particularly contribute to the economic stability of surviving spouses in an aging society.
Second, expanding family business inheritance deductions affects the survival of small and medium-sized enterprises and job retention. The current family business inheritance deduction has a maximum of 50 billion won, with strict post-management conditions for 10 years, making its utilization relatively low. According to a survey by the Korea Federation of SMEs, 68% of small business owners considering business succession cited inheritance tax burden as a major obstacle. Expanding the deduction limit to 100 billion won and shortening the post-management period to 5 years would benefit an additional 2,000 companies. This can help maintain sustainable business growth and job preservation by facilitating business succession. However, some are concerned about the possibility of it being used for management succession by conglomerate owner families, making it important to design the system to provide substantial benefits to small and medium-sized enterprises.
Third, changing the tax method can increase the fairness of tax burden. The current estate tax method applies progressive tax rates to the entire property of the deceased, resulting in high rates even when distributed to many heirs. In contrast, switching to an acquisition tax method would determine tax rates according to the amount each heir receives, reducing the burden on small-scale inheritors. For example, when equally inheriting 3 billion won among three children, about 700 million won in tax would be imposed under the estate tax method, but this could be reduced to about 400 million won under the acquisition tax method. This is expected to work favorably for middle-class families where inheritance is distributed among multiple heirs. However, there are concerns about tax revenue reduction and potential tax avoidance, requiring careful system design.
Inheritance tax policy changes impact various economic aspects beyond simple tax issues, including economic equity, business sustainability, and job creation. Particularly in a situation of rapid aging and rising asset prices, inheritance tax policy has become an important factor in middle-class asset formation and economic stability. It is important to find a balance among various goals such as securing tax revenue, redistributing wealth, and enhancing economic vitality in policy decisions.
💡 Middle Class and Increasing Inheritance Tax Burden Phenomenon
Let's analyze the background of the middle class becoming interested in inheritance tax and the extent of the actual burden.
First, with rising real estate prices, even the general middle class is being included in inheritance tax subjects. Over the past five years, the average price of apartments in the metropolitan area has increased by about 60%. In Gangnam-gu, Seoul, the average apartment price exceeds 1.8 billion won, far exceeding the basic deduction amount of 500 million won. According to National Tax Service data, inheritance tax filers increased from about 20,000 in 2020 to about 30,000 in 2024. In particular, filers in the 1-3 billion won inherited property value range increased the most, showing an increasing inheritance tax burden on the middle class. For an inheritance tax base of 1 billion won, a tax rate of 20% applies, requiring payment of about 100 million won in tax. The middle class, mostly holding assets in real estate form, may find it difficult to raise this amount in cash.
Second, aging is expected to increase inheritances while decreasing per capita inherited property. Korea is expected to enter a super-aged society (over 20% of the population aged 65 or older) in 2025. As baby boomers (born 1955-1963) begin full-scale inheritance, annual inheritance cases are expected to increase from about 80,000 in 2020 to about 120,000 in 2030. However, due to the low birth rate, the number of children has decreased, potentially increasing the amount inherited per person compared to the past. This could result in higher tax rates being applied under the current estate tax method. Additionally, with increasing medical expenses due to aging and the burden of living costs after retirement, the rate of asset depletion in old age is increasing, making intergenerational asset transfer more difficult than in the past.
Third, compared internationally, Korea's inheritance tax burden is relatively high. Among 38 OECD member countries, 10 countries including Australia, Canada, and New Zealand have no inheritance tax, and only Japan (55%) and Korea (50%) have maximum tax rates of 50% or higher. The United States applies 40%, the United Kingdom 40%, and Germany 30% as maximum rates. Most countries also provide wider deduction ranges than Korea or adopt the acquisition tax method to reduce the actual tax burden. Particularly for spousal inheritance, countries like the United States, the United Kingdom, and Germany exempt it entirely from taxation, while Korea allows deductions only up to 3 billion won. These international comparisons reinforce the perception that Korea's inheritance tax system is relatively strict.
The middle class becoming interested in inheritance tax is the result of complex factors including rising real estate prices, increasing inheritances due to aging, and internationally high tax rates. Considering the trend of increasing inheritance tax burden on the middle class, inheritance tax policy is no longer just an issue for the wealthy but has become an important economic issue that directly affects many middle-class households. The inheritance tax reduction pledges presented by candidates from both parties in this presidential election can be seen as reflecting these socioeconomic changes.
💡 Issues and Prospects of Ruling and Opposition Party Pledges
Let's look at the main issues and future prospects of the inheritance tax-related pledges of the candidates.
First, abolishing spousal inheritance tax is a common pledge across parties, but there are differences in specific plans. Ruling party candidate Kim advocates 'complete abolition of spousal inheritance tax,' while opposition candidate Lee proposed 'abolishing the deduction limit but taxing above a certain amount.' Economists generally agree that there is little need to impose taxes on spousal inheritance as it is merely a transfer of wealth within the household. In fact, most developed countries like the United States, the United Kingdom, and Germany exempt spousal inheritance from taxation. The tax revenue reduction from abolishing spousal inheritance tax is estimated at about 300 billion won annually, about 10% of total inheritance tax revenue. This policy benefits all classes as it expands the inheritance tax deduction range, but it also has a regressive nature where benefits increase with more property.
Second, lowering the maximum tax rate is a contentious issue with sharply opposing opinions. The ruling party candidate argues for "reduction from 50% to 40%," while the opposition candidate opposes it as a "tax cut for the rich." Opinions are divided in the economics community as well. On one hand, high rates are argued to hinder investment and job creation and promote overseas asset outflows. On the other hand, there are concerns that lowering the maximum tax rate would concentrate benefits on ultra-high net worth individuals, deepening inequality. According to National Tax Service data, the top 10% of inheritance tax filers with a tax base of 3 billion won or more bear about 70% of total inheritance tax revenue. Lowering the maximum tax rate is expected to bring the greatest benefit to them. The tax revenue reduction from lowering the maximum tax rate by 10 percentage points is estimated at about 500 billion won annually.
Third, the implementation plan and timing are key for changing the tax method. While both parties principally agree with transitioning from the estate tax method to the acquisition tax method, there are differences in specific implementation plans and timing. The ruling party candidate emphasized "quick transition," while the opposition candidate proposed "gradual transition through sufficient research and social consensus." Transitioning to the acquisition tax method has the effect of lowering tax burdens when distributed to multiple heirs, benefiting the middle class, but there are also possibilities of tax revenue reduction and tax avoidance. According to Korea Institute of Public Finance simulations, transitioning to the acquisition tax method is expected to reduce inheritance tax revenue by about 20%. Detailed design including adjustment of basic deduction amounts or changes in tax rate structures to complement this tax revenue reduction remains an important task.
In this presidential election, inheritance tax policy has emerged as an important issue involving various socioeconomic values beyond simple tax matters, including inter-class equity, intergenerational wealth transfer, and business sustainability. Both parties are presenting pledges conscious of moderate and middle-class voters, but show clear differences in stance on some issues like lowering the maximum tax rate. When implemented as actual policies after the election, a balanced approach considering various factors such as tax revenue impact, wealth redistribution, and economic vitality will be needed.
4️⃣ In Conclusion
Ahead of the June 3 early presidential election, candidates from both parties are actively presenting inheritance tax reduction pledges. These include abolishing spousal inheritance tax, lowering the maximum tax rate, expanding family business inheritance deductions, and changing the tax method, but they fundamentally share the commonality of targeting moderate and middle-class voters.
Ruling party candidate Kim promised complete abolition of spousal inheritance tax, reduction of the maximum tax rate from 50% to 40%, and expansion of family business inheritance deductions. In contrast, opposition candidate Lee agreed with abolishing spousal inheritance tax but opposed lowering the maximum tax rate, focusing on expanding family business inheritance deductions for small and medium-sized enterprises. Both candidates principally agreed to transition the tax method from estate tax to acquisition tax.
The reason inheritance tax has emerged as a major election issue is that rising real estate prices have caused the general middle class to feel the inheritance tax burden. In fact, inheritance tax filers increased from about 20,000 in 2020 to about 30,000 in 2024, with filers in the 1-3 billion won range increasing the most. Additionally, increasing inheritances due to aging and internationally high tax rates have also raised interest in inheritance tax.
Abolishing spousal inheritance tax would benefit all classes, but lowering the maximum tax rate is expected to concentrate benefits mainly on ultra-high net worth individuals. Expanding family business inheritance deductions can help maintain business survival and jobs, while changing the tax method has the effect of reducing the burden on small-scale inheritors.
In this presidential election, inheritance tax policy has become an important economic issue involving various values beyond simple tax matters, including wealth redistribution, intergenerational equity, and business sustainability in our society. Regardless of which candidate is elected, policies are expected to be concretized in a direction that can balance the two goals of easing the tax burden on the middle class and enhancing economic vitality.