Gifting early turned a ₩9.7M tax bill into ₩38.8M
A gift made to an heir within 10 years of death is added back to the estate, and the gift tax already paid is credited against the inheritance tax but never refunded. On a ₩1.2bn estate, gifting ₩300M ahead takes the tax from ₩9.7M to ₩38.8M.
Conditions used in the video
- Estate to be passed on
- ₩1.2bn
- Amount the spouse receives
- ₩600M
- Children
- 1
- Years from gift to death
- 2
- Growth assumed
- 0%
Results
- Inherit everything
- ₩9.7M
- Gift ₩300M first
- ₩38.8M
- Difference
- ₩29.1M
- Deduction cap lost (total unchanged)
- ₩150M
- Had ₩600M been gifted
- ₩101.85M
At a glance
A ₩1.2bn estate, ₩600M to the spouse, one child, death two years after the gift.
- No gift₩9.7M
deductions already cover almost all of it
- ₩300M gifted₩38.8M
four times
- ₩600M gifted₩101.85M
Why it works this way
Gifting early to save tax is common advice. Follow the provisions and it often runs the other way.
A gift made to an heir within 10 years of death is added back to the estate. For someone who is not an heir, such as a grandchild, the window is 5 years.
제13조 puts it back, then 제28조 settles the gift tax already paid.
- At the giftgift tax is charged after only a ₩50M gift deduction
- 제13조the gift is added back to the estate
- 제28조the gift tax is credited against inheritance tax, never refunded
Where the inheritance tax is smaller than the gift tax already paid, the difference is simply extra tax.
Take a ₩1.2bn estate where the spouse receives ₩600M and there is one child.
With no gift, the inheritance tax is ₩9.7M, because the ₩500M lump-sum deduction and the ₩600M spouse deduction take ₩1.1bn off.
Gift ₩300M ahead and the gift tax is ₩38.8M while the inheritance tax falls to nil. Together ₩38.8M, four times as much.
The gift tax paid ahead is larger than the inheritance tax would have been.
- No gift₩1.1bn deducted (₩500M lump sum + ₩600M spouse) → ₩9.7M
- ₩300M gifted₩50M deducted → gift tax ₩38.8M
- Not refundedinheritance tax falls to nil, but ₩29.1M stays paid
Gift tax only allows the ₩50M gift deduction; inheritance tax takes ₩1.1bn off through the lump-sum and spouse deductions.
One thing has to be said plainly here.
Here the cap does fall to ₩950M, but at ₩1.1bn the total would still be ₩38.8M.
- Deductions below the capnothing is lost
- Deductions above the capthe excess is lost
- Estate of ₩500M or lesssubparagraph 3 does not apply at all
With a ₩1.1bn cap the ₩10M inheritance tax is wiped out by the gift tax credit; with ₩950M the ₩40M is. Either way only the ₩38.8M gift tax remains.
There are cases where gifting clearly wins. The amount added back is frozen at its value on the gift date.
The freeze on the added-back value is the key.
- Past 10 yearsno add-back at all
- An asset that will risethe gain stays outside the estate
- Small inheritance deductionsthe gift tax paid is fully credited
But nobody knows when death will come, and that is the largest variable in this decision.
So gifting ahead tends to cost more the larger the inheritance deductions already are. Which side you are on depends on the size of the estate and the family, so it is quicker to put your own figures in.
The legal basis
Drawn from government announcements and the statutes themselves as primary sources, covering only the relevant part.
상속세 및 증여세법 제13조제1항 (estate for tax purposes)
In force in force
The taxable estate is the value of the estate, less the items under 제14조, plus: 1. property gifted by the deceased to an heir within 10 years before death; 2. property gifted to a person who is not an heir within 5 years before death.
What this means
Ten years for heirs, five for everyone else. Gifts inside that window come back into the estate.
같은 법 제24조 (limit on deductions)
In force in force
Deductions under 제18조, 제18조의2, 제18조의3, 제19조 to 제23조 and 제23조의2 are limited to the taxable estate less any of the following; subparagraph 3 applies only where the taxable estate exceeds ₩500M. 3. the gifted property added back under 제13조 (net of any amount deducted under 제53조, 제53조의2 or 제54조).
What this means
A ceiling, not a subtraction. Where the deductions already sit below it, nothing happens, and below ₩500M the subparagraph does not apply at all. In this example the cap does bite, but the gift tax credit takes the inheritance tax to nil either way, so the total does not change.
같은 법 제28조제1항·제2항 (credit for gift tax and its limit)
In force in force
The gift tax on property added back under 제13조 (meaning the gift tax computed at the time on that property) is credited against the inheritance tax. This does not apply where the taxable estate is ₩500M or less. (2) The credit is limited to the inheritance tax multiplied by the share of the added-back gift in the tax base.
What this means
The gift tax already paid is credited, so this is not double taxation. But the credit only works inside the inheritance tax. There is no provision refunding gift tax beyond it. That is where the fourfold rise comes from.
같은 법 제21조 (lump-sum deduction) · 제19조 (spouse deduction)
In force in force
The greater of the basic and personal deductions combined, or ₩500M, is deducted. The spouse deduction is based on what the spouse actually receives, capped at the statutory share or ₩3bn whichever is lower, with a floor of ₩500M.
What this means
The larger these two already are, the more a gift ahead costs. Gift tax gets neither, so more tax is paid ahead than the inheritance tax would have been.
Run it on your own numbers
The calculator opens with these conditions already filled in. Change the figures and your own case comes straight out.
Open the Gift vs Inheritance Tax Comparison
Frequently asked
So should I never gift ahead?
Not at all. Past 10 years the add-back disappears entirely, and even inside the window the amount added back is frozen at its value on the gift date, so for an asset that will rise sharply, the gain stays outside the estate. The catch is that nobody knows when death will come, and that is the largest variable here.
Isn't it the deduction cap that pushed the tax up?
Not in this example. 제24조 subparagraph 3 does bring the cap down to ₩950M, but even at ₩1.1bn the inheritance tax is credited to nil and the total is the same ₩38.8M. The rise comes from gift tax, charged without the inheritance deductions, that is never refunded.
Will mine also go up four times?
Probably not. It rises only when the gift tax paid ahead exceeds the inheritance tax you would otherwise have paid. Here the deductions covered almost the whole estate, so the inheritance tax was just ₩9.7M. A large estate with small deductions has a large inheritance tax, and most of the gift tax is credited against it.
What happens to the gift tax already paid?
It is credited against the inheritance tax (제28조제1항), up to the limit in paragraph 2. Gift tax beyond the inheritance tax is not refunded. And where the taxable estate is ₩500M or less, the credit does not apply at all.
Is it different for a grandchild?
The window is 5 years rather than 10 (제13조제1항제2호). In exchange the gift tax carries a 30% surcharge, or 40% where a minor receives over ₩2bn (제57조제1항).
Does acquisition tax differ too?
It does. Inheritance is taxed at 2.8%, or 0.8% where the heir ends up with one home, against 3.5% on a gift. And inheritance is charged on the published price while gifts use the recognised market value, so the real gap is far wider than the rate gap.
Results are estimates based on the inputs and on the rules as at the stated date. They may differ from a lender's actual assessment, and the rules change often. Take professional advice before any decision that matters.