South Korea collects the highest share of total tax revenue from inheritance tax among major economies, surpassing the OECD average by more than four times. Even when measured as a percentage of GDP, the country’s inheritance tax burden ranks the highest among OECD nations. Critics argue the tax is excessive, even considering that it primarily targets the wealthy and upper-middle class.
According to the National Assembly Budget Office, inheritance and gift tax revenue accounted for 1.59% of South Korea’s total tax revenue—4.4 times the OECD average of 0.36%. Japan, which has the world’s highest inheritance tax rate at 55%, ranked fourth at 1.33%, following Belgium (1.46%) and France (1.38%). The United Kingdom, which applies a flat 40% inheritance tax, reported a much lower share of 0.71%, less than half of South Korea’s.
When measured against GDP, South Korea’s inheritance tax revenue stood at 0.7%, tying with France and Belgium for the highest among OECD nations. Japan followed at 0.5%, while the United Kingdom recorded 0.3%.
Why is South Korea’s inheritance tax burden so high?
Several factors contribute to South Korea’s exceptionally high inheritance tax burden, including a high tax rate, low exemptions, and its estate tax system. Unlike countries that impose an inheritance tax, where each heir is taxed on their share of the estate, South Korea follows an estate tax model, where taxes are levied on the total estate before distribution.
Among the 24 OECD countries that impose an inheritance tax, only four—South Korea, the United States, the United Kingdom, and Denmark—use the estate tax system. However, unlike South Korea, the other three exempt spousal inheritance from taxation. This makes South Korea the only OECD country to apply an estate tax system while taxing spousal inheritance.
While the U.S. maintains a relatively high 40% estate tax rate, it offers substantial exemptions, allowing heirs to inherit up to $12.92 million (approximately 18.8 billion won) tax-free, meaning only a small number of individuals actually pay inheritance tax.
Japan’s model: high rate, but more exemptions
Despite Japan’s 55% maximum inheritance tax rate, its system differs significantly from South Korea’s. Japan follows an inheritance tax model, where each heir is taxed on their individual share of the estate, rather than the total estate value. Spousal inheritance is also tax-exempt. Additionally, Japan provides significant relief for family business succession, exempting 80% of inheritance tax liabilities for small business owners passing ownership to their heirs. This exemption will be expanded to 100% until 2027.
Japan originally introduced an estate tax in 1905 to finance the Russo-Japanese War but transitioned to an inheritance tax system in 1950—a shift South Korea never made.
Another key difference is tax enforcement. A 2024 Worldpay report on global payment trends found that cash transactions accounted for just 7% of total payments in South Korea—one of the lowest rates globally, trailing China and Sweden (5%). This means nearly all transactions are tracked by tax authorities. In contrast, Japan’s cash usage remains high at 39%, similar to the Philippines (41%) and Nigeria (40%), making tax enforcement more challenging.
Nordic countries abolish inheritance tax amid capital flight concerns
Unlike South Korea, which has been reluctant to reform its inheritance tax due to concerns over “tax cuts for the rich,” Nordic countries such as Sweden and Norway have actively abolished or reduced inheritance taxes, citing concerns over capital flight and economic harm.
Sweden, under a Social Democratic government, introduced a strict inheritance tax system in 1940, combining estate and inheritance tax models with an average tax rate of 60%. However, as businesses faced bankruptcies and wealthy individuals moved abroad to escape taxation, Sweden abolished the estate tax in 1959 and completely eliminated inheritance tax in 2005.
Many countries that have scrapped inheritance taxes have compensated through capital gains tax. Canada, the first OECD country to eliminate inheritance tax in 1971, adopted this approach. Under this system, inherited assets are considered acquired at zero cost, and taxes are applied only when they are later sold.
Calls for reform in South Korea
Park Hun, a professor of taxation at the University of Seoul, suggests that South Korea should gradually ease inheritance tax and eventually phase it out while strengthening income tax measures, such as reducing the number of income tax-exempt individuals.
“Relying on inheritance tax as a revenue source is inherently unstable, as it is difficult to predict when and how much will be collected,” he said.
