[비즈한국] When the Lunar New Year arrives, nieces and nephews perform traditional bows (sebae), and adults offer words of wisdom along with envelopes of "sebaetdon" (New Year's money). It is also a time when many worry about how much to give based on the recipient's age. With changing times and rising inflation, many people now feel that 50,000 won is insufficient for wedding gifts, making it burdensome to give only small change to nephews and nieces. However, as times have changed, knowledge of economics has also increased, and many children now save their New Year's money.
There has also been an increase in parents opening bank or brokerage accounts to save gold rings or New Year's money received by their children. According to data provided by the five major banks—KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup—to the office of Democratic Party Representative Jin Sun-mee, the balance of savings and deposit accounts for minors at the end of last year stood at 7.809 trillion won. This is an increase of 1.3114 trillion won (20.2%) compared to the 6.4977 trillion won recorded at the end of 2020.
While the total number of minor savings and deposit accounts showed a downward trend, high-balance accounts have increased. The number of high-value accounts with 500 million won or more was 145 at the end of last year, up from the previous year (136), and the balance also rose by 15.4 billion won (11.4%), from 134.8 billion won to 150.2 billion won. Rep. Jin pointed out, “There is a need to investigate the possibility of expedient gifting using minor accounts,” adding, “It is time to consider tightening the gift tax reporting criteria for deposits and savings above a certain amount.”
Like this, money collected bit by bit in a child's name is also subject to tax. Generally, celebratory money such as New Year's money, wedding gifts, and funeral contributions are not taxed. Of course, under the Inheritance and Gift Tax Act, New Year's money is in principle subject to gift tax. However, if the tax base is less than 500,000 won, it falls under the minimum tax threshold and is not taxed. But if the amount exceeds social norms, it becomes taxable.
Office worker A decided to put 10 million won saved in their child’s name into a brokerage account to invest in U.S. stocks, but became worried after hearing the term "gift." Since a gift refers to the transfer of property or benefits from another person for free, regardless of the form or purpose of the transaction, receiving any item of economic value, rights with property value, or any economic benefit that can be converted into money for free is considered a gift and is subject to gift tax. However, supporting the tuition and living expenses of a child who is not independent and has no separate income is not considered a gift, as it falls under the parent's duty of support.
Even if A’s child is subject to gift tax, because they are a minor, they do not have to pay gift tax as long as the amount does not exceed 20 million won over 10 years. A total of 40 million won can be received tax-free before reaching adulthood. However, it is only a matter of time before tax authorities detect the 10 million won deposit into the child's account. Even if it is not taxable, if a gift has been made, it must be reported to the local tax office. It is a misconception to think that you do not need to file a gift tax report because the minor is exempt from tax. If you do not report the gift and have to pay taxes later, penalties will be added; therefore, it is better to report it regardless of whether it exceeds the deduction limit or not.
Rather than investing the money saved in the child’s name directly into stocks, there is also the option of gifting overseas stocks you already hold to your child. If you gift stocks that do not exceed the tax-free limit, no gift tax is incurred. Furthermore, while you would normally pay a 22% capital gains tax on profits from overseas stocks (after deducting the 2.5 million won base deduction), when gifting stocks, the market price at the time of the gift becomes the acquisition cost of the stock. This means you only bear capital gains tax on the appreciation in value after the gift. However, if the gifted stocks are sold within one year, the acquisition cost is considered to be the original giver's acquisition price rather than the gift value; thus, waiting for more than a year before selling can reduce the tax burden.
There is one more thing to consider: the criteria for personal deductions in the year-end tax settlement. If you have dependents with no fixed income, you receive a personal deduction of 1.5 million won per person during the year-end settlement. It is important to remember that if their total comprehensive, capital, and retirement income exceeds 1 million won per year, they will be excluded from the personal deduction.
Additionally, one should not overlook the fact that if a parent actively buys and sells stocks in a minor child's name on their behalf, it may be regarded as a borrowed-name account, which could lead to a situation where the parent is forced to forfeit most of the profits generated from their active trading activities.