2026 Inheritance and Gift Tax basics and tax-saving strategies

Why prepare for inheritance and gifts in advance?

Inheritance and gifting are important issues related to wealth transfer that everyone may encounter. With recent tax law amendments and societal shifts, the methods, tax burdens, and tax-saving strategies for inheritance and gift-giving have undergone significant changes. As we move into 2026, we review the revised inheritance/gift tax laws and tax-saving strategies with experts.

Heirs, order of inheritance, and reserved portions

Heirs are determined by law in the following order: children and spouse, parents and spouse, siblings, and collateral relatives. (Note: A bill abolishing siblings' reserved portions is currently pending in the National Assembly.) Because inheritance order can depend on wills, agreements, and statutory rules, early preparation is important.

Order of heirs:

• 1st: Children, Spouse
• 2nd: Parents, Spouse
• 3rd: Spouse
• 4th: Siblings
• 5th: Collateral relatives within the 4th degree

Only priority heirs can claim reserved portions. Lineal descendants and spouses may claim ½ of their statutory shares; lineal ascendants may claim 1/3. Siblings’ reserved portion rights were eliminated on September 20, 2024.

Residents vs. non-residents and differences in taxable estate

If the decedent is a resident, both domestic and overseas assets are taxable. Non-residents are taxed only on domestic assets. Consultation with a specialist is essential if overseas assets are involved.

• Resident: All domestic and overseas assets are taxable
• Non-resident: Only domestic assets are taxable

How much Inheritance/Gift Tax will be due?

Various deductions apply to inheritance and gift taxes, including spouse, child, minor, and elderly deductions.

Business succession for SMEs and mid-sized companies allows deductions up to KRW 60 billion. Financial asset inheritance deductions may also apply.

A bill to raise inheritance tax deduction limits is pending. Spouses may deduct at least KRW 1 billion from inherited assets.

• Basic deduction: KRW 200 million
• Spouse deduction: Minimum KRW 500 million, up to KRW 3 billion
• Child deduction: KRW 50 million per child
• Minor deduction: KRW 10 million × remaining years until age 19
• Elderly (65+) deduction: KRW 10 million × life expectancy years
• Disabled deduction: KRW 10 million × life expectancy years

Business succession deduction applies up to KRW 60 billion, depending on business duration.

• 10–20 years: KRW 30 billion
• 20–30 years: KRW 40 billion
• 30+ years: KRW 60 billion

Financial asset inheritance deduction applies up to KRW 200 million based on net financial assets.

Gift tax deductions depend on the donee, including a newly introduced marriage/childbirth deduction up to KRW 150 million.

• Spousal gift: KRW 600 million
• Lineal ascendants (including spouse): KRW 50 million (KRW 20 million for minors)
• Lineal descendants: KRW 50 million
• Other relatives: KRW 10 million
• Marriage/childbirth deduction: KRW 100 million

Special rules apply to business succession gifts.

• Giftor: Age 60+, largest shareholder holding 10+ years
• Donee: Resident 18+, must participate in business by filing deadline
• Must become CEO within 3 years of the gift

Inheritance/gift tax rates: 10–50% depending on tax base.

Source of funds and importance of reporting

The source of funds must be clear when acquiring assets or repaying debt. Even below threshold amounts, confirmed gifts may still be taxable.

• Under age 30: KRW 50 million each for housing, other assets, debt repayment; total limit KRW 100 million
• Age 30+: Housing KRW 150 million; other assets and debt repayment KRW 50 million each; total limit KRW 200 million
• Age 40+: Housing KRW 300 million; other assets KRW 100 million; debt repayment KRW 50 million; total limit KRW 400 million

Unreported inheritance can increase capital gains tax burden later, and penalties apply for non-filing.

• Filing by the deadline gives a 3% tax reduction
• Underreporting or non-reporting penalty: 10–40%
• Reported amounts are recognized later as valid sources of funds

Asset valuation standards

Valuation is based on fair market value at the valuation date. Listed shares are valued based on average closing prices within two months before/after the date. Unlisted shares use weighted averages of earnings and net asset value.

• 1st Priority: The transaction price of the asset itself, based on sales that occurred within or outside the valuation period
• 2nd Priority: The transaction prices of comparable assets from six months before the valuation date up to the filing date within the valuation period
• 3rd Priority: Transaction prices of comparable assets outside the valuation period that have been reviewed and approved as fair market value by the Valuation Review Committee
• 4th Priority: The supplemental valuation amount calculated in accordance with Articles 61 to 65 of the Inheritance and Gift Tax Act

Listed shares (KOSPI, KOSDAQ) are valued based on the average closing price over the two months before and after the valuation date. Unlisted shares are valued using a weighted average of earnings value (3) and net asset value (2).

How to prepare tax-saving strategies

Which is better—inheritance or gifting—depends on asset size and distribution method.

• Inheritance is favorable for estates under KRW 500 million or KRW 1 billion
• Gifts are favorable when dividing assets to a lower tax base. 

Generational skipping gifts incur surtaxes of 30% (40% when a minor receives over KRW 2 billion).

• Timing matters: Gifts given 10 years before death to heirs and 5 years before death to non-heirs are excluded from the inherited estate.
• Future-value advantage: Gift appreciating assets earlier

Parent-child loans must apply a statutory interest rate of 4.6%. 

• Loans without proper interest over KRW 10 million benefit trigger gift tax
• Borrowing below KRW 217 million (10M / 4.6%) is not taxed as a deemed gift

Special Rules for Majority Shareholders

• Transactions between specific corporations and related parties may trigger gift tax if high/low pricing or debt forgiveness creates a benefit exceeding KRW 100 million

Spousal Gifted Real Estate Sold Within 10 Years

• If real estate gifted to a spouse is sold within 10 years, the capital gains tax increases significantly because the acquisition value is based on the gift-date value
• After 10 years, the acquisition value equals the sale price, reducing taxable gain

Recent trend: living trusts (will-substitute trusts)

Living trusts distribute assets to beneficiaries upon the grantor's death, reduce family disputes, and offer simplified procedures.

Conclusion and expert advice

Inheritance and gifting affect family stability and business continuity. Custom strategies reflecting tax law changes are essential. Professional consultation is recommended.