Apartments in the metropolitan area are potentially subject to inheritance tax.
In 2017, inheritance tax for a house in Seoul was 6 million won.
These days, it’s a ‘tax bomb’ with 130 million won.
It is difficult to dispose of villas and houses, so defaulters are in trouble.
“Is this a wealth tax?” Demands for its realization are growing
“In the old days, we used to say, ‘If you pay inheritance tax,’ we should become friends (because you are rich). These days, ‘I’m an ordinary person, but I pay inheritance tax?’ That’s your reaction. This is because house prices have risen and the number of people subject to inheritance tax has increased significantly. If you get 100 million won in inheritance tax, you don’t have money to pay taxes right away. “That’s why my father sold the house he lived in all his life with tears in his eyes.” (Tax accountant Jang-won Lee)
As house prices rise significantly, inheritance tax targets are also rapidly increasing. As the inheritance tax, which was applied only to some rich people, has degenerated into a ‘universal tax’, actual consumers are demanding that the inheritance tax be ‘realized’. The original purpose of the inheritance tax was to ‘redistribute wealth’, but these days, ordinary people are becoming ‘poorer’ due to the inheritance tax. This means that the number of people who are having to sell the house they received when their parents passed away because they cannot pay the taxes is increasing. It’s fortunate if the house sells, but when the real estate market is bad like these days, there are extreme cases where houses don’t sell and ‘debt’ accumulates when ‘taxes’ are not paid, and people become ‘inherited beggars’.
Lee Jang-won, a tax accountant who recently met with YouTube channel Maeburi TV, said, “People who thought ‘inheritance tax’ wasn’t their problem are shocked when they check the taxes after their parents die.”
Enlarge photo Tax accountant Lee Jang-won said, “Inheritance tax has now become a universal tax that anyone who owns a house must prepare for.” [사진 출처=매부리TV]
-Why is inheritance tax such a problem these days?
▷In the past, inheritance tax was known as a tax paid only by the rich. However, as asset prices have risen significantly over the past few years, the number of targets has increased significantly. The average price of an apartment in Seoul in 2017 was about 560 million won. 2022 is 1.15 billion won. Applying the 500 million won lump sum inheritance tax deduction, in 2017, if you inherited a house in Seoul, the inheritance tax was about 6 million won. But these days, if you inherit it, it costs 130 million won. Inheritance tax has increased more than 20 times.
-Then I guess inheritance tax is really no one else’s business.
▷(National Tax Service Statistics) Last year, the number of people paying inheritance tax was close to 20,000 (19,500). Compared to five years ago, the number of taxpayers has increased by more than 10,000. The 20,000 people subject to inheritance tax are about 6% of the number of deceased (based on 300,000 people per year). If you think about whether the tax paid by about 6% is a tax paid only by the rich, it becomes a bit surprising. Also, looking at the total value of inherited assets, the 1 billion to 2 billion won range is the largest with 8,510 people (43.6%). This means that if you own a house in Seoul (market value of 1 billion won or more), you are subject to inheritance tax.
-But isn’t it good to inherit a house in Seoul?
▷ Among those who received an inheritance, not many have 100 million won in cash. In Korea, most assets are held in houses. You have to pay 100 million won to get the house that the deceased left behind, but since you can’t pay this, you sell the house in a hurry. This is the so-called ‘inheritance quick sale’. During this process, the heirs feel guilt at having to sell the house their father lived in and sadness at having to leave the home they have loved their whole life. There are many people who are stressed out because they have to sell their house to pay taxes and move to a smaller house for a lower price.
-What should I do if the house doesn’t sell?
▷That is the real problem. If you inherit an apartment, it will sell well. However, if you receive a villa or a house, there are many cases where you cannot dispose of it and cannot pay taxes. It is really difficult to sell multi-generational homes in these days, when acquisition and ownership taxes are being increased and the avoidance of villas is intensifying. If you inherit multiple generations, the problem is that no one wants to live there, so you can’t pay the inheritance tax and are left holding on to the house. Even if you want to tear down the building and sell it as land, it costs money to tear down the building. Among those who received an inheritance, not many people have cash right away. If you fail to pay the inheritance tax, it becomes delinquent and is recorded in ‘Eul-gu’. Then, of course, property values will fall further. If you receive an inheritance by mistake, you are in real trouble.
-I heard that our country has a particularly high inheritance tax rate. Is that true?
▷The share of inheritance tax and gift tax in total tax revenue in Korea is 2.42%, which is much higher than the OECD average of 0.42%. If you look at the ratio alone, they are ranked 1st or 2nd. Among OECD countries, 17 do not have an inheritance tax.
-Why is that so?
▷This is because our country places great importance on the function of wealth redistribution, but the problem is that when asset prices have skyrocketed, the inheritance tax remains the same and ordinary people are also subject to it, so one may wonder whether the ‘wealth redistribution’ function is being achieved. That’s right. So, those who have been aware of the inheritance tax issue for several years have sold their assets in advance and moved abroad. Investment immigration to Australia or the US. There is no inheritance tax in Australia.
The average price of an apartment in Seoul is 1 billion won, and now the price of a national unit (32 pyeong) in the metropolitan area exceeds 1 billion won, so the number of apartments worth more than 1 billion won is increasing in the metropolitan area. If this happens, even ordinary people who own an apartment will be subject to ‘potential inheritance tax.’ This is a warning that unprepared inheritance tax could become a ‘bomb’. Death comes without warning. Detailed information about inheritance tax preparation can be found in our email newsletter, Maeburi Letter. Just search for Hawksbill Letter on the Internet.
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