Property sales between family members require careful attention to the price and proof of payment. A signed sale agreement alone may not establish that the transaction is a genuine sale.
Under Korean tax law, property transferred between spouses or direct ancestors and descendants is generally presumed to be a gift. This presumption can be rebutted by evidence establishing a genuine sale for consideration. It does not automatically apply to every family relationship.
Below-Market Transfer Threshold (for Gift Tax Purposes)
If the transfer price is less than 70% of market value, the portion of the difference exceeding the lower of 30% of market value or KRW 300 million is treated as a gift to the recipient and is subject to gift tax.
If the transaction price is at least 70% of market value, gift tax generally does not apply. However, transactions between family members are assessed based on their substance rather than their form. If the buyer lacks the financial means to pay the purchase price, or there is no supporting evidence of payment or financing, such as bank transfer records or a loan agreement, the transfer may be presumed to be a gift.
Separate Capital Gains Tax Rules
The seller must also consider capital gains tax. If a related-party transaction improperly reduces the seller’s tax burden, market value may replace the agreed price when the difference is at least 5% of market value or KRW 300 million. Avoiding gift tax therefore does not necessarily prevent a capital gains tax adjustment.
Preparing Supporting Evidence
Market value must be determined under the applicable tax valuation rules. The figure agreed between family members is not automatically accepted as market value.
Relevant evidence may include qualifying transaction prices and appraisal values. An independent appraisal can help support the valuation, but it must meet the statutory requirements; obtaining an appraisal does not guarantee that the tax authorities will accept the reported value.
Before completing a family property transaction, review the market value, actual payment arrangements, and both parties’ tax treatment together.