[Anchor]

Handing out pocket money to nieces, nephews, and grandchildren you haven't seen in a while during the holidays is a very familiar and heartwarming sight. However, depending on how children manage and use this money, they might end up having to pay a gift tax.

Reporter Min Gyeongho looks into when taxes are actually levied.

[Reporter]

If you saw a nephew or niece you haven't seen in a while during Chuseok and gave them 500,000 won in pocket money, saying "Are you already in high school?", do you have to pay a gift tax?

For now, you do not.

This is because commemorative gifts and congratulatory money that are recognized as socially customary are not subject to gift tax.

It is also fine to send and receive the money through a bank account.

What determines whether gift tax applies is the purpose of the funds exchanged, so you do not need to worry about whether a paper trail is left behind.

However, the situation changes in cases like this.

If a parent says, "Give that pocket money to Dad, and I'll grow it so you can buy a laptop," and invests the money on their behalf to grow it, it becomes subject to taxation in principle.

This is because the money was not used for daily living expenses, but rather became seed money for investment.

This applies not only to holiday pocket money.

Parents often deposit cash into an account made in their child's name and use it to buy stocks, which must also be reported as a gift for the same reason.

Since the taxable amount is the initially gifted sum rather than the grown investment returns, if your goal is to build a large sum of money for your child through some investing, it is more advantageous to report and gift the money before it grows.

Minors are exempt from gift tax for gifts up to 20 million won over a 10-year period.

However, if you engage in aggressive investments such as frequent day trading in the child's account after reporting the gift, the grown investment returns may be subject to taxation.

This is because the law explicitly defines "increasing the asset value of another person" as a gift.

[Interview / Lee Chang-eon / Tax Expert Advisor, NH Nonghyup Bank: If they only used the child's account, but the parents invested everything using their own knowledge or labor, then the increased profits may also be subject to taxation...]

Caution is also required when investing monthly child allowances.

Since child allowances are funds paid to parents for raising a child, depositing them into a child's account for investment purposes makes them subject to gift tax.

This means that simply designating the payout account as the child's account does not exempt you from having to file a gift tax report.

(Photo: Yonhap News)
(Video Reported by: Shin Jin-su | Video Edited by: Lee Seung-jin)