Dealing with property transfers between family members can feel like navigating a maze. Complex tax laws make it difficult to know which path to take. If you choose the wrong method without professional advice, you might face huge financial losses.
This post explains the clear differences between Gifts and Sales within a family. We will also cover essential saving tips and warnings about Family Loan Agreements. Use this guide to protect your wealth and stay compliant with tax authorities.
1. Gift vs. Sale: Which One Is Better for Your Family?
When moving property to a family member, you must first choose between a Gift and a Sale. This choice changes your tax bill significantly.
Family Gifts: You transfer property to a child or relative for free. The person receiving the property (the donee) must pay Gift Tax. The rate depends on the property value, but you can use specific "deduction limits" to lower the cost.
Family Sales: You sell the property to a family member. In this case, the seller must pay Capital Gains Tax. You must use the Market Value for the transaction. If the price is too low, tax authorities may see it as a "disguised gift" and charge extra taxes.
Reader's Perspective: If the property value is small or fits within deduction limits, a Gift is often better. If the profit margin is low and capital gains taxes are small, a Sale might save you more. Always run a simulation with an expert first!
2. Three Core Strategies to Reduce Gift Tax
If you want to minimize your tax burden, keep these three strategies in mind:
A. Use Market Value to Your Advantage
Taxes are calculated based on the Appraised Value of the property. Usually, the government looks at the Market Value.
Market Price: For apartments, the price of similar units sold within the last six months counts as the market value.
Standard Value: For houses or land with no recent sales, the government uses a "standard price."
The Benefit: Giving a property at a higher market value might seem expensive now. However, it raises the "acquisition cost" for the receiver. This means they will pay much less in Capital Gains Tax when they sell the property later.
B. Maximize Your Gift Tax Deductions
You do not pay tax on amounts within the deduction limit. These limits reset every 10 years.
| Relationship | Deduction Limit | Note |
| Spouse | $450,000 (600M KRW) | Combined total over 10 years |
| Parents to Adult Child | $37,000 (50M KRW) | $15,000 (20M KRW) for minors |
| Child to Parent | $37,000 (50M KRW) | Combined total over 10 years |
| Other Relatives | $7,500 (10M KRW) | Siblings, cousins, etc. |
C. Split the Gift and Time It Well
Gift taxes apply to the receiver. If you have three children, giving a portion to each child uses three separate deduction limits. Also, giving smaller amounts every 10 years is much cheaper than giving one giant sum at once.
3. Avoiding the "Low-Price Sale" Trap
Many people try to sell property to family at a very low price to avoid taxes. However, tax laws are very strict about the Difference from Market Value.
The 5% Rule: If the sale price differs from the market value by more than 5% (or roughly $225,000), the government will recalculate your taxes based on the full market price.
Deemed Gift Tax: If you sell a house too cheaply, the government treats the "missing discount" as a gift and charges Gift Tax on top of the sale.
Reader's Perspective: Don't try to be too clever with "bargain" sales to your kids. The tax office uses sophisticated data to track these gaps. Stick close to the market price to stay safe.
4. Using a Loan Agreement Instead of a Gift
Sometimes, parents "lend" money to children for a house. To avoid being taxed for a gift, you must prove it is a Loan.
Official Notarization: Get the loan agreement notarized or send it via certified mail. This proves you didn't just make it up yesterday to hide from an audit.
Set a Realistic Interest Rate: The legal interest rate is often around 4.6%. You must state the repayment plan clearly in writing.
Keep Transfer Records: Never use cash. Use bank transfers so you have a "paper trail" showing the child actually paying back the principal and interest.
Reader's Perspective: A piece of paper is not enough. Without actual bank records showing monthly interest payments, the tax office will almost always call your "loan" a "gift" and send you a big tax bill.
Final Thoughts: Preparation is Key
Family wealth transfers are more than just moving money. They are about smart planning. Tax laws change frequently, especially as we move deeper into 2026. This guide provides a strong foundation, but your personal situation is unique.
Always consult with a tax professional before signing any documents. A small consultation fee today can save you tens of thousands of dollars in taxes tomorrow.
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Thanks a lot