Inheritance tax deduction per child to jump to 500 million won

Starting next year, the tax-exempt amount for inheritance given per child will increase tenfold, and the top inheritance tax rate will be reduced from 50% to 40%. This marks the first adjustment in the maximum tax rate in 25 years and the first change in the tax-exempt limit in nine years. However, the Democratic Party of Korea is opposing the move, claiming that “tax cuts for the wealthy are unacceptable” and suggesting a challenging passage through the National Assembly.

On Thursday, the Ministry of Economy and Finance finalized the 2024 tax law amendments during a tax development review committee meeting held at the Bank Hall in Jung-gu, Seoul. Vice Prime Minister and Finance Minister Choi Sang-mok explained in a briefing, “We aim to reduce the burden of inheritance tax on the middle class, particularly large families, by lowering the world's highest inheritance tax rate to 40% and extensively increasing the child deduction amount from 50 million won to 500 million won.”

Additionally, the government plans to raise the threshold for the minimum tax rate of 10% from 100 million won to 200 million won and abolish the 20% surcharge for major shareholders when inheriting stocks. However, the spouse deduction of up to 3 billion won and the flat deduction of 500 million won will be maintained.

The government will introduce a marriage tax credit to encourage marriage and childbirth, offering a 1 million won income tax refund to newlyweds upon registering their marriage, applicable to couples between January 2024 and 2026. Furthermore, the income tax deduction per child will increase from 150,000-300,000 won to 250,000-400,000 won.

Comprehensive real estate tax reform was not included in this year's tax amendment due to the significant reduction in the number of taxpayers and the amount collected last year and concerns that further changes would adversely affect local finances. “We will monitor the discussions in the National Assembly,” a ministry official said. The taxation on virtual asset investment income, initially set to begin next year, has been postponed by two years.

The 2024 tax amendment is expected to reduce tax revenue by 4.35 trillion won next year, with inheritance and gift taxes plummeting by approximately 3.7 trillion won annually. Amid ongoing tax revenue shortfalls, concerns about the sustainability of fiscal policy are rising as the Yoon Seok Yeol administration continues its tax cut stance for the third consecutive year since taking office.


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