US Deduction Up to 17.1 Billion... Belgium 0% Tax on Family Business Inheritance [Inheritance Tax Reform How]③

Canada and Sweden Replace Inheritance Tax with Capital Gains Tax
US Offers Generous Benefits with High Exemptions
Adjusted Annually to Reflect Inflation

As discussions on inheritance tax reform intensify, cases of major foreign countries that have abolished inheritance tax to alleviate the burden on the middle class or to prevent corporate exit are gaining attention. Representative examples include Canada and Sweden, which abolished inheritance tax and switched to capital gains tax. There is also interest in countries that designed radical deduction systems to significantly reduce the effective tax rate. The United States, which effectively eased the tax burden on the middle class by providing deductions up to 17.1 billion KRW, and Belgium, which does not apply inheritance tax if certain conditions are met, are examples.

Canada and Sweden, which abolished inheritance tax and introduced capital gains tax

Canada does not have inheritance tax. Starting with Alberta abolishing inheritance and gift taxes in 1972, all provinces in Canada have completely abolished inheritance tax. Of course, abolishing inheritance tax does not mean no taxes are paid at all. Instead, capital gains tax is levied. Canada’s capital gains tax is applied only to the acquisition price of the inherited property.

For example, if parents bought stocks for $100 and at the time of inheritance to their children the value has risen to $500, inheritance tax would be imposed on the full $500, but Canada’s capital gains tax is levied only on the capital gain of $400. Later, if the heir sells the stocks for $600, a separate capital gains tax is imposed on the $100 gain.

Sweden is another representative country that introduced capital gains tax instead of inheritance tax, similar to Canada. In 1984, the famous pharmaceutical company Astra AB transferred ownership to the UK’s Zeneca due to the heavy inheritance tax burden at the time (effective tax rate of 70%), which sparked active discussions on the existence of inheritance tax. Subsequently, capital gains tax was introduced.

Compared to Canada, Sweden’s system is somewhat simpler. The tax burden is deferred until the child disposes of the inherited assets. Assuming parents bought stocks for $100, which were worth $500 at the time of inheritance to the child, and the child later sells them for $600, Sweden imposes capital gains tax at once on the $500 gain, which is the difference between the sale price ($600) and the original purchase price ($100).

United States reduces tax burden with 17.1 billion KRW deduction despite inheritance tax... Belgium applies 0% inheritance tax on family business succession

The United States maintains inheritance tax but provides extraordinary benefits through high deductions, effectively resulting in almost no tax burden. As of last year, a unified deduction of $12.9 million, approximately 17.1 billion KRW, is applied. U.S. citizens or residents can receive inheritance deductions up to 17.1 billion KRW. The deduction amount is adjusted annually to reflect inflation. Moreover, since 2010, the surviving spouse of the deceased heir can choose not only their own tax credit amount but also the unused deduction amount of the deceased. There is no limit on the amount of inheritance deduction for the surviving spouse.

Belgium offers special tax benefits for the inheritance of family businesses or companies. Personal deductions vary by region, but in the Walloon region, family businesses can be subject to 0% inheritance tax if certain conditions are met. These conditions include active economic activity of the business for three years after the death of the deceased and maintenance of the company’s shares. Some countries maintain even more radical tax systems. Since January last year, Chile exempts inheritance tax on the first house acquired through inheritance by an individual.

Professor Kang Seong-hoon of Hanyang University’s Department of Public Policy emphasized, "In Korea, neither the deduction system nor the tax system has changed for a long time. It is necessary to comprehensively review the irrationalities of the tax system by referring to various cases such as the United States, which adjusts deduction amounts to reflect inflation."