Does an allowance from parents count as a gift? The answer depends on the amount, purpose and how the money is spent.
Minor children may receive up to 20 million won and adult children up to 50 million won tax-free over a 10-year period.
Living expenses and tuition are not automatically exempt — what matters is how the money is actually used.
A separate deduction of up to 100 million won is available for gifts made around a child's wedding.
Even regular monthly transfers can be subject to gift tax scrutiny depending on the recipient's financial situation.
[Editor's note] Taxes affect every citizen, yet the complexity of tax law and its unfamiliar terminology make the subject daunting for many. Understanding taxes that touch everyday life — income tax, property tax, comprehensive real estate tax, inheritance tax and gift tax — is the foundation of sound financial management. The Herald Business is launching "Tax Talk with Yun Yu-jin," a series produced with Seoul Metropolitan Council member and accounting and taxation doctoral degree holder Yun Yu-jin. The series will cover everyday tax knowledge, major tax reforms, tax-saving strategies and policy debates in plain language accessible to the general public. Its goal is to serve as a practical tax guide that deepens taxpayers' understanding of the system and strengthens their rights. Yun Yu-jin: master's degree in tax law from Yonsei University; doctorate in accounting and taxation from Gachon University; member of the 12th Seoul Metropolitan Council (Education Committee); head tax accountant at Yun Yu-jin Tax Accounting Office; adjunct professor in the Department of Accounting and Taxation at Gachon University; National Tax Service (March 2021–July 2017).
Does an allowance from parents trigger gift tax? Where is the line on money between family members?
Does money a parent sends a child for living expenses or pocket money attract tax? What about a lump sum given to a child about to marry, or assets passed directly to grandchildren? Even money that flows naturally within a family can be subject to gift tax depending on the amount, the purpose and the method of payment, making it an area that warrants careful attention.
The third episode of "Tax Talk with Yun Yu-jin," a lifestyle-focused tax information program, examines gift tax issues that can arise from financial transactions within families. The episode uses everyday examples — allowances given to children, living expenses, wedding funds, and assets received from parents and grandparents — to explain the gift tax system in accessible terms.
The first thing to understand is the deduction limit that applies when transferring assets to a child. Under current tax law, assets received as a gift from a lineal ascendant such as a parent qualify for a gift tax deduction of up to 50 million won ($37,300) for adult children and up to 20 million won for minor children over any 10-year period.
However, these limits do not apply separately to each parent. The deduction ceiling on gifts received from lineal ascendants is calculated on a combined basis over the relevant period, meaning that even if both a father and a mother each give money, the deductible amount does not double.
Funds provided to a child who is about to marry call for a separate deduction regime. Assets received as a gift from a lineal ascendant within two years before or after the date of marriage registration may, if certain conditions are met, qualify for a marriage gift tax deduction of up to 100 million won on top of the standard gift tax deduction.
An adult child who has not previously used any of the standard deduction allowance could therefore receive up to 150 million won tax-free, combining the 50 million won basic deduction with the 100 million won marriage deduction. The combined ceiling with the childbirth gift tax deduction and any prior gift history must also be checked.
Living expenses and tuition occupy a different category. Not all money a parent sends a child is subject to gift tax. Living expenses and educational costs for a dependent that fall within what is socially accepted as reasonable may qualify for a tax exemption if certain conditions are satisfied.
The critical question is what the money was actually spent on. If funds received as living expenses were used for day-to-day costs, they may be recognized as tax-exempt. But if the recipient saved the money in a deposit account or used it to buy shares or real estate, gift tax liability can arise.
The same logic applies to regular monthly transfers. The mere fact that money was sent on a recurring basis does not by itself determine whether it is taxable. The recipient's financial circumstances, the need for support, the amount transferred and how the money was actually used must all be considered together.
If a child has independent income and assets and has little genuine need for financial support, it may be difficult to secure a tax exemption on the grounds that the transfers were simply family allowances.
Receiving assets from both parents and grandparents also requires care. Gifts received from lineal ascendants may be aggregated when calculating the gift tax deduction limit. When grandparents give assets directly to grandchildren, the possibility of a surcharge for generation-skipping transfers must also be reviewed.
Another common question is whether a gift tax return must be filed when the amount received falls within the deduction limit. In general, if no tax is owed after applying the deduction and no separate filing obligation arises, a return may not be strictly required — but filing can still be worth considering in order to create a clear record of the gift and how the assets were acquired.
When a gift tax return is required, it must in principle be filed within three months of the last day of the month in which the gift was received. Missing the deadline or omitting taxable assets can result in penalties and other disadvantages, making advance verification important.
This episode of "Tax Talk with Yun Yu-jin" aimed to move beyond viewing money exchanged within a family as a simple transfer of cash, and to help viewers accurately understand the nature of asset transfers and the requirements under tax law.
Money between family members is not automatically free from tax. Equally, a parent who provides living expenses to a child is not automatically required to pay gift tax. What matters is not just the amount, but the purpose of the payment, how it was spent and whether prior gifts have been made.
The deductions available vary with a family's life stage — marriage, childbirth, child-rearing — so confirming the relevant conditions before transferring assets is the starting point for sound tax planning. Because the applicability of specific deductions depends on the facts of each individual case, verifying the details through the National Tax Service's guidance or by consulting a tax professional is advisable.
7toy7@heraldcorp.com
