[Exclusive] "Skipping Children, Giving to Grandchildren"... 1.3 Trillion Won Given to Under Ten-Year-Olds Over 5 Years

[Image source=Yonhap News]

[Asia Economy Reporters Kim Hyunjung (Sejong), Jang Sehee] Recently, due to the sharp rise in real estate prices, there has been a significant increase in gifts where grandparents transfer assets to their grandchildren as a form of tax saving. Over the past five years, the amount skipped across generations has exceeded 7 trillion won, of which the amount received by infants and young children under the age of ten surpassed 1.3 trillion won.

According to the ‘2016~2020 Age-specific Generation-skipping Gift Tax Decision Status’ submitted by the National Tax Service to Park Honggeun, a member of the National Assembly’s Planning and Finance Committee from the Democratic Party, generation-skipping gifts, which were 6,230 cases and about 971 billion won in gift value in 2016, increased by 80% to 11,237 cases and 1.7515 trillion won in 2020. The corresponding gift tax (determined tax amount) also jumped 96%, from 169 billion won to 332.8 billion won.

Generation-skipping gifts are considered a kind of tax-saving tip to avoid tax burdens caused by rising asset prices. The effective tax rate of generation-skipping gifts is about 19%, which is almost the same as general gifts (18%), allowing a reduction in tax burden by shortening the gift stages.

[Image source=Yonhap News]

Cases where the recipient is an infant or young child under the age of ten also approached 2,000 last year. Last year, generation-skipping gifts to those under ten years old amounted to 1,976 cases and 260.9 billion won. Over five years from 2016, generation-skipping gifts to those under ten totaled 8,375 cases, with asset values reaching 1.297 trillion won.

The age group with the highest proportion among all generations is young adults aged 20 to 29, who received about 2.29 trillion won from the grandparent generation over the past five years. This amount accounts for 30% of the total generation-skipping gifts (7.4738 trillion won) during the same period and is more than twice the amount for those aged 30 to 39 (1.322 trillion won).

Oh Moonseong, president of the Korean Tax Policy Association (professor of Tax Accounting at Hanyang Women’s University), said, "Recently, as real estate prices have soared, many cases of gifting have increased to avoid the costly capital gains tax surcharges," diagnosing it as "a phenomenon caused by excessive capital gains tax surcharges." Assemblyman Park Honggeun emphasized, "Effective taxation is needed on wealth inheritance that exacerbates asset polarization between households and young people."

This content was produced with the assistance of AI translation services.