Family business inheritance deduction tops W500b despite president's parking lot jab

The total value of assets exempted under South Korea's family business inheritance deduction last year surpassed 500 billion won ($359 million), according to newly released government data. The deduction allows heirs who inherit a small or medium-sized enterprise that the deceased had run for at least 10 years to deduct up to 60 billion won from the taxable value of the estate, with the exact amount depending on the length of the owner's tenure.

An analysis of the Ministry of Economy and Finance's 2025 tax expenditure settlement report, obtained by People Power Party lawmaker Lee Yang-su's office, shows that the value of assets exempted under the family business inheritance deduction reached 541 billion won last year — up 311.8 billion won, or 136 percent, from the previous year. The figure has grown roughly 15.7 times over the past decade, from 34.4 billion won in 2015.

The deduction stood at just 5.7 billion won in 2011 before climbing broadly upward, crossing the 100 billion won mark in 2020 at 136 billion won and reaching 318 billion won in 2023. It dipped to 229.2 billion won in 2024 before surging sharply last year.

A tax authority official attributed the sharp jump to chance, noting that inheritance is triggered by death and that the spike in claims last year was "coincidental."

Even so, a separate but related benefit — one that applies when a living parent transfers a business to a child — has also grown rapidly in recent years.

The value of assets exempted under the gift tax special regime for business succession, which applies a reduced tax rate when a business operated for at least 10 years is transferred before the owner's death, reached 438.8 billion won last year, up 135.7 billion won, or 44.8 percent, from the year before.

That figure is roughly 8.8 times the 49.9 billion won recorded a decade earlier in 2015. The exemption stood at just 1.1 billion won in 2010 before crossing the 100 billion won threshold in 2021 at 115.2 billion won and accelerating sharply since.

Looking at last year's tax expenditure by category, inheritance and gift tax breaks totaled 2.47 trillion won — up 768.5 billion won, or 45.1 percent, from the prior year and roughly 19.1 times the 129.4 billion won recorded in 2015.

Tax expenditure refers to fiscal support provided through tax exemptions, non-taxation, income deductions, tax credits, preferential rates or deferred taxation under special tax treatment provisions.

The inheritance deduction applied to financial assets reached 557.1 billion won, up about 173.2 billion won, or 45.1 percent, from the previous year. The financial asset inheritance deduction last posted its biggest percentage increase three years ago, rising 108.9 billion won, or 52.9 percent, to 314.7 billion won in 2022. The Ministry of Economy and Finance attributed the latest rise to "an increase in the deductible amount driven by rising share prices and other factors."

The growth in inheritance and gift tax breaks appears to reflect a combination of factors: broader economic expansion, policy changes that have raised deduction ceilings, and taxpayers increasingly seeking more favorable arrangements with the help of tax professionals.

Critics, however, say some taxpayers have exploited loopholes in ways that go beyond the original intent of the provisions.

President Lee Jae-myung raised the issue at a Cabinet meeting in April, questioning whether a parking lot could genuinely qualify as a family business. "If you own 500 billion won worth of real estate, you can turn it into a parking lot, run it for a while, and after 10 years pass it on tax-free," he said, signaling that the system needed to be tightened.

In response, the government earlier this month announced a tax reform package that would restrict the family business inheritance deduction for large bakery cafes to cases where bread is baked on the premises, and would exclude supermarkets, bus and taxi operators, parking lot operators, warehouse businesses, hospitals and pharmacies from the list of eligible business types — sectors widely cited as typical examples of what critics call "loophole inheritance."

A broader look at last year's tax expenditure settlement report suggests that the benefits of tax reductions have, in some areas, worked to concentrate economic power further.

National tax reductions for cross-shareholding restricted business groups — the country's largest conglomerates — totaled 4.27 trillion won, an 81.8 percent increase from 2.35 trillion won in 2024, while reductions for small and medium-sized enterprises rose just 4.3 percent to 18.83 trillion won. Total corporate tax reductions grew by 2.7 trillion won, of which the large conglomerates accounted for 71.1 percent.

Total national tax reductions last year came to 76.11 trillion won, with the special income deduction and tax credit for insurance premiums representing the largest single item at 7.25 trillion won. Broken down by income decile, 51.5 percent of the insurance premium deduction benefit accrued to the top 10 percent of earners.