Assets held by Korean seniors triple over 11 years amid rapid aging

The amount of inherited and gifted wealth in South Korea has more than doubled over the past year compared to five years ago, with the top 1 percent of inheritors receiving an average of about 230 billion won ($171.5 million) per individual and paying 100 billion won in inheritance tax.

According to data provided by the National Tax Service to Representative Yang Kyung-sook of the Democratic Party on Monday, the total value of inherited and gifted property last year amounted to 188.4 trillion won, more than doubling from five years ago.

In particular, inherited wealth reached 96.05 trillion won last year, nearly tripling the amount from five years ago. Of the increased wealth, the taxable inherited property was 62.7 trillion won, resulting in a total determined tax of 19.2 trillion won. For the 92.3 trillion won of gifted property from the past year, 44.09 trillion won was taxable, contributing to a total determined tax of 8.4 trillion won.

The surge in inherited and gifted wealth is primarily driven by the fast-aging population in Korea.

An analysis conducted by Maeil Business Newspaper on household net worth data from Statistics Korea showed that individuals aged 60 and above saw their collective net worth exceed 3,500 trillion won for the first time last year, marking an all-time high.

From 2011 to the most recent data, the net worth of seniors has more than tripled to reach 1,172 trillion won.

The wealth distribution trend across age groups, measured as a percentage of total wealth, underscores the acceleration in wealth accumulation among seniors. Over the period from 2011 to this year, the share of net worth held by those in their 20s and 30s decreased from 15 percent to 12 percent.

Similarly, the wealth held by individuals in their 40s and 50s, the core contributors to the economy, declined from 57 percent to 49 percent.

In stark contrast, individuals aged 60 and above experienced a substantial jump in wealth from 1,172 trillion won to over 3,600 trillion won, elevating their share of assets from 28 percent to 39 percent.

[Image source: Gettyimagesbank]

To address the potential strain of excessive inheritance and gift taxes within an aging population, the Ministry of Economy and Finance is contemplating implementing an acquisition inheritance tax that would require heirs to pay taxes based on the amount of inherited property.

The proposed tax system is likely to be introduced after the general election next year, following comprehensive research and public consultations, to mitigate concerns about favoring the wealthy.

The acquired inheritance tax only targets the portion of the inheritance received by the heir, not the entire sum. The total inheritance value is divided among the heirs, and the applicable tax rate is then applied, resulting in a relatively lighter tax burden.

The approach differs from Korea’s current system, which taxes the total inheritance amount upfront before distributing the property to the heirs. Larger inheritances attract higher tax rates under this system, leading to greater tax liability.

In comparison, many advanced countries adopt the acquired inheritance tax.

Of the 23 member countries of the Organization for Economic Cooperation and Development (OECD) that have an inheritance tax framework, only four, including Korea, the U.S., the U.K., and Denmark, tax the entire inheritance.

While inheritance tax has traditionally targeted wealthy individuals with larger assets, the aging population and escalating asset prices are gradually making the middle class susceptible to inheritance tax.

However, the inheritance and gift tax rates have remained unchanged for 23 years since 2000, prompting taxpayers and taxation experts to advocate for revising the threshold to reflect the evolving economic conditions, encompassing higher incomes and asset valuations.

“The accumulated wealth among seniors must smoothly pass on to younger ones, who possess the potential to spend and generate income anew,” said an unnamed lawyer from a local law firm. “Therefore, the revamp of inheritance and gift tax codes can be an approach to foster prosperity throughout society.”