The Gap Between Dirt Spoons and Gold Spoons Widens [Exclusive]

[경향신문]

The property received as gifts by people ages 39 and younger last year exceeded 12 trillion won for the first time. The value of gifted buildings, such as apartments and commercial buildings, alone surpassed 4 trillion won. The transfer of wealth within the family is accelerating and the gap between the young people is growing wider.

On July 3, the Kyunghyang Shinmun requested and obtained the National Tax Service data, “Gift Tax Status in 2020 According to Age Groups,” from the office of Democratic Party of Korea lawmaker Yang Kyung-sook. According to the data, the government decided to impose the gift tax on people in their twenties and thirties for gifts of land, apartments and other buildings, securities, financial assets, and other assets that they received in 59,995 cases, 2,603 cases more than in the previous year. When we include people ages 19 and younger who also received gifts of property (11,056 cases, nearly 2 trillion won), the state decided to impose the gift tax to people ages 39 and younger on 71,051 cases for gifted property worth nearly 12.2 trillion won. The value of the property received by people ages 39 and younger rebounded significantly from the previous year’s decline (-19.2 billion won) and increased by 191.1 billion won last year.

Unlike the inheritance tax, which applies a rate based on the total value of the property a person leaves to the heirs, the gift tax is only imposed on the property that each heir receives. This is usually viewed as one way to reduce taxes, so when the property of the wealthy increase, gift taxes are likely to increase as well.

The soaring real estate prices appear to have caused the growth in the total property that was handed down. The value of buildings that were gifted to people ages 39 and younger was nearly 4.5 trillion won. This was 660 billion won (16%) more than in the previous year. A look at all age groups showed that the value of buildings (9.87 trillion won) given to another person increased 18.8% from the previous year. A closer look at the type of property showed that, with the exception of other property (23%) including golf club memberships, the value of buildings increased most significantly.

The number of gifted buildings, as well as their value, also increased. Compared to the previous year, the number of cases where people ages 39 and younger received a building increased by 648 to 16,737 cases. The government is imposing a stronger property comprehensive real estate tax including the property tax on homes, and a heavier capital gains tax is expected to be imposed on people owning multiple homes. Thus the latest increase seems to be fueled by multiple home owners who are trying to change their status to single home owners by giving their extra homes to their children. The publicly announced housing prices, which can increase the tax burden, are expected to continue the current climb, so more people are trying to reduce the number of homes owned per household by giving the houses to their children as fast as they can. After last August, the acquisition tax on gifts jumped three-fold in Seoul, but expectations that housing prices will continue to rise has fueled the gifting frenzy.

The gifting of property other than buildings also increased. The number of gifts of securities and financial assets to people ages 39 and younger increased by 298 cases and 4,137 cases respectively and the number of gifts of other property also increased by 322 cases. Gifts of financial assets increased because the government announced that it would begin imposing an income tax on the marginal profit from the sales of stocks and bonds, which were not taxed, in 2023.

Last year, the number of land (undeveloped) gifts fell in all age groups except for people in their sixties and recorded 53,405 cases. Gifts of land mainly increased until 2019 and decreased for the first time last year. Gweon Tae-wu, a tax accountant said, “Usually when it comes to land, people mostly give cheap land as gifts, but a number of regulations, such as the approval for land transactions, has restricted the number of transactions reducing the number of gifts.”

As more people in their twenties and thirties receive property as gifts, the gap between the young people is expected to widen. Due to the transfer of wealth, asset inequality is growing, and experts point out that we need to change the way we assess the value of the property being gifted. Gu Jae-yi, another tax accountant said, “Except for apartments, the value of gifts or inheritances of property, such as land and buildings, like commercial buildings, is assessed based on the standard market price, but the standard price is only about a fifth of the actual market price.” Gu argued, “We need to change our evaluation system so that the value of the gifted property is closer to the market price to ensure equity in the burden on the transfer of wealth.” Lawmaker Yang said, “The polarization due to gifts and inheritances can discourage young people from working, when they are to open the future, and it creates various side effects like social inefficiency.” She added, “We need to conduct a fierce investigation and thoroughly check to see if any property is gifted through expedient measures and if there are any attempts to evade taxes.”