Does Splitting Deposits Between Spouses Change the Tax

Financial Income Is Counted per Person

The test for whether interest and dividends together exceed KRW 20 million runs on the person. Amounts scattered across several banks and securities firms are all added for one person, and spouses are not combined with each other. Splitting into several accounts changes nothing; the name has to change.

So the same KRW 1.2 billion produces different results held in one name and split between spouses. At 2.5% per year pre-tax, one person holding it all earns KRW 30 million of interest; split in half, each earns KRW 15 million. The total interest received is the same KRW 30 million, and only the assessment differs.

KRW 30 million crosses the threshold, becomes subject to global taxation, and has to be filed the following May. KRW 15 million sits below it, ends with 15.4% withheld, and requires no filing at all.

What gets split here is the principal that produces the interest. Moving only the interest into a spouse's account does not change to whom the income belongs. Whose income the interest is follows from whose name the deposit is in, and the withholding records go to 국세청 (the National Tax Service) on that basis.

Up to KRW 600 Million to a Spouse Over Ten Years

Transferring assets attracts gift tax, but article 53 of the Inheritance Tax and Gift Tax Act allows a deduction up to a set amount. The limit differs by relationship.

The limit runs in ten-year periods. Amounts already deducted within the ten years before a gift are added, and anything above the limit is not deducted. It is counted on the recipient.

The KRW 600 million for a spouse is not an amount used at once but KRW 600 million combined over ten years. Transfer KRW 200 million three years ago and KRW 400 million of allowance remains.

The limits for children are far smaller. KRW 50 million transferred to an adult child produces KRW 1.25 million of interest at 2.5% per year. The scale does not suit splitting financial income, and it fills the ten-year limit in one go.

Above the limit, gift tax applies to the excess. The rate is a five-band progression from 10% to 50%, so a larger excess draws a higher rate. That is where finishing within the limit and going even slightly over diverge.

What Splitting Actually Changes

This is KRW 1.2 billion in deposits at 2.5% per year pre-tax, for someone with KRW 50 million of other global income such as employment income.

Additional income tax is net of what was already withheld and of the tax that would arise with no financial income. Local income tax of 10% applies on top, making the actual difference KRW 1.1 million.

The KRW 1.1 million saving repeats every year. At the same rate on the same principal, the following year produces the same difference.

Transferring KRW 600 million to a spouse sits within the allowance, so the gift tax is zero. Once transferred, the interest arising afterward continues to count as the spouse's income. At 2.5% per year, KRW 600 million produces KRW 15 million a year.

Using the whole KRW 600 million at once, though, leaves no allowance for transfers to that spouse over the next ten years. Should rates rise and interest grow, there is no room left to split further.

For someone with no other income the position differs. With no other income, even KRW 30 million of financial income produces no additional tax, so there is nothing to gain from splitting. The calculation is in financial income above KRW 20 million.

What to Check Before Splitting

The calculation that splitting reduces tax holds, but three things come before acting on it.

First, the transfer has to be real. Placing a deposit under a borrowed name is not a gift but a nominee transaction, prohibited by the Financial Real Name Act. To be recognized as a gift, ownership has to actually pass and the spouse has to be able to dispose of the money as their own. An arrangement to return it later is not a gift.

Second, health insurance moves the other way. What is gained in tax can be lost in premiums. Dependent status is recognized only where both spouses meet the income requirement. Creating financial income for a spouse creates a new requirement on that side. Where a spouse held dependent status with no income, KRW 15 million arriving means the requirement has to be tested again. This is where the tax falls but a premium appears. The requirements are set out in how rising interest can end health insurance dependent status.

Third, ten years have to be looked at together. The allowance is cumulative over ten years, so using the full KRW 600 million now leaves nothing for further transfers to that spouse over the next ten. Where inheritance is also in view, this is calculated first. Transferring in stages rather than all at once stretches the allowance further.

Gift tax is filed within three months from the end of the month in which the assets were received. Even where the tax is zero because the amount is within the allowance, filing records the fact and the date of the gift.

Filing also records how much of the ten-year limit has been used. That becomes the basis for calculating the remaining allowance on any further transfer.

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