[Tax Focus] Will the Deduction Amount Increase?... Inheritance Tax Reform Under Discussion

Consensus Between Ruling and Opposition Parties on Reducing Tax Burden
Inheritance Acquisition Tax Faces Criticism Over Revenue Shortfall
Differences Remain Over Raising Deductions or Abolishing the Tax

On the 25th, the National Assembly began full-scale discussions on the reform of inheritance tax, which has emerged as a hot-button issue due to the impact of rising real estate prices and inflation. Both the ruling and opposition parties agree on the need to reduce the tax burden, but they remain divided over whether to raise the deduction amount or to abolish the inheritance tax altogether. The introduction of an inheritance acquisition tax, which would tax inherited assets at the recipient level, is considered highly unlikely to pass due to concerns about decreased tax revenue and criticism that it would benefit the wealthy.

Park Sooyoung, a member of the People Power Party and chair of the Tax Subcommittee of the Planning and Finance Committee, told a reporter from The Asia Business Daily on this day, "Starting today, we are beginning discussions on adjusting the inheritance tax deduction amount." Since its introduction in 1950 and its revision in 1997, the inheritance tax has maintained a basic structure with a flat deduction of 500 million won and a spousal deduction ranging from 500 million to 3 billion won for 28 years. Notably, the top marginal inheritance tax rate stands at 50%, and a 20% surcharge is applied to shares held by major shareholders, making it among the highest in the world.

As a result, raising the deduction amount and introducing an inheritance acquisition tax have emerged as alternative solutions. A partial amendment to the Inheritance and Gift Tax Act, which would restructure the tax system based on the inheritance acquisition tax, has been brought to the subcommittee's discussion table. Previously, in May during the 21st presidential election period, the government, led by then-Acting President and Deputy Prime Minister for Social Affairs Lee Jooho, passed an amendment to the Inheritance and Gift Tax Act centered on introducing the inheritance acquisition tax. Under this system, taxes would be levied on the assets each individual heir receives, rather than on the total estate, and the tax base would be divided proportionally according to the number of heirs, thereby reducing the overall tax burden.

However, members of the Tax Subcommittee have reportedly focused on a number of issues, including the need for multiple legal revisions, potential tax revenue shortfalls, and concerns about the intergenerational transfer of wealth that could arise from implementing a new tax system. Park stated, "There are many complicated aspects when changing the system, so there are a lot of questions from members," adding, "It is difficult to reach a consensus to introduce the system at this time." He further explained, "While the inheritance acquisition tax aligns with the principle of ability-to-pay, it would result in a significant overall tax revenue shortfall," noting that some lawmakers are questioning whether this is the right direction to take.

On the 24th, the Tax Subcommittee of the Planning and Finance Committee is being held at the National Assembly in Yeouido, Seoul. The amendment to the Restriction of Special Taxation Act and other matters are being discussed at this meeting. November 24, 2025. Photo by Kim Hyunmin

Raising the deduction amount is also under discussion. President Lee Jaemyung stated at a press conference marking his 100th day in office on September 11, "As part of my campaign pledge, I proposed that there should be no inheritance tax up to 1.8 billion won (spousal deduction plus flat deduction), so that people can continue living in their homes as long as the value does not exceed the average price of a home in Seoul." Following President Lee's remarks, discussions on inheritance tax reform have increasingly focused on raising the deduction amount.

The Democratic Party of Korea is prioritizing an increase in the deduction amount and has submitted a bill (sponsored by Assemblyman Jung Ilyoung and nine others) that would raise the flat deduction from 500 million won to 700 million won, the minimum spousal deduction from 500 million won to 1 billion won, and the deduction for inherited assets subject to gift tax from 500 million won to 700 million won. If the two bills are harmonized, the total deduction for spousal inheritance or gifts could increase to between 1.7 billion and 1.8 billion won.

In contrast, the People Power Party is pushing for the complete abolition of spousal inheritance tax as its official stance. The party has previously introduced amendments (by Assemblyman Choi Eunseok) to exempt spousal inheritance and gift tax, as well as amendments (by Assemblymen Kwon Youngse and Park Chungkwon) to eliminate the cap on spousal inheritance deductions, allowing for full deductions. There are also proposals to lower the top inheritance tax rate from the current 50% to between 30% and 40%. Assemblyman Choi's amendment would reduce the top rate to 30%. Assemblywoman Park Sumin has proposed a bill to lower the top rate to 25% and to reduce the threshold for the highest tax bracket from assets exceeding 3 billion won to those exceeding 1 billion won.

Meanwhile, discussions on corporate tax will resume as soon as the Planning and Finance Committee receives the requested data from the Ministry of Economy and Finance. The subcommittee has asked for estimates of expected tax revenue if the current corporate tax rates are maintained for four tax brackets, with a 1 percentage point increase applied to the remaining brackets, taking into account the impact on small and medium-sized enterprises.