Korea seeking to up tax deduction on inheritances when child gets married

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The South Korean government plans to ease the 50 million won ($38,000) threshold for deducting inheritances from parents when their children get married, a move based on the idea that a lower tax burden will give younger generations more leeway when getting married and lead to a slight increase in the birth rate.

On Tuesday, the Ministry of Economy and Finance released plans to increase the deductibility of intra-family gifts for newlyweds and increase the tax-free limit for maternity and childcare allowances in its economic policy direction for the second half.

At the core of this plan lies the expansion of gift tax deduction for funds necessary for marriage. Under the existing law, parents can currently receive a deduction for up to 50 million won per adult child when gifting assets. Parents have the option to gift up to 50 million won per child over a period of 10 years or a maximum of 100 million won over 20 years without incurring any taxes. If the deduction limit is exceeded, a maximum tax rate of 50 percent is applied. The current deduction limit has remained unchanged since its last relaxation from 30 million won in 2014.

The government believes that these measures will facilitate intergenerational wealth transfer and enhance the spending power of the younger generation. Based on an analysis conducted by Maeil Business Newspaper using data from Statistics Korea, net assets of the elderly population aged 60 and above, surpassed a record 3,600 trillion won last year. This amount represents 1.7 times the total gross domestic product of South Korea, highlighting the substantial wealth held by the elderly. The ministry plans to finalize the specific deduction limits through public feedback and aims to implement the revised tax law as early as this month.

In addition to the deduction limit adjustments, the government also announced plans to bolster private pension and housing pension incentives as part of its efforts to address aging population. These measures involve increasing the current separation taxation threshold for private pensions, which has remained unchanged at 12 million won since 2013.

Furthermore, tax benefits for childcare support provided by companies, such as childcare allowances given to employees, will be expanded by raising the tax-exempt limit, which currently stands at 100,000 won per month.

To address labor shortages and expand the working-age population, the government outlined plans to further facilitate the influx of foreign labor. Specifically, the quota for skilled foreign workers with E-7-4 visa, which was limited to 2,000 per year in the previous year, will be increased to over 30,000 for this year. Moreover, a pilot program will be conducted next year to allow non-professional foreign workers with E-9 visa to provide domestic services as foreign housekeeping assistants.