Wealthy children’s stockholdings soar

By Kim Tae-jong

Stockholdings of minors aged 18 or under skyrocketed to about 4 trillion won last year as more parents registered shares under their children’s names, up from 1.1 trillion won the previous year, data revealed Wednesday.

According to the Korea Exchange (KRX), the number of “child stockholders” stood at 92,000 at the end of last year, and the value of their shares accounted for 1.8 percent of all shares.

Their stock holdings are estimated at 3.95 trillion won, up from 370 billion won in 2004, 750 billion won in 2009 and 1.12 trillion won in 2010.

Critics say that minors have accrued increasing numbers of shares as a means to transfer wealth and evade gift tax.

Under the related law, teenagers are only allowed to open an account to trade shares with an adult representative.

“The number of minor shareholders is increasing,” an official from the KRX said. “And it is possible that parents transfer their wealth to their children in the form of stocks, as it is not illegal. Even babies have stocks, although obviously they can’t trade their shares.”

Experts also say that a lot of people take an advantage of the loophole in the gift tax law by gradually transferring their wealth to children from when they are at an early age.

According to the National Tax Service, 5,989 people aged 18 or under were given fortunes by their parents or grandparents in 2010, and of them, 2,213 were under 10.

The number of teenagers receiving assets or property worth more than 5 billion won stood at three in 2006, 20 in 2008 and six in 2010.

As a result, a lot of teenagers are now subject to the Comprehensive Real Estate Holding Tax, which is levied on people holding high-priced real estate.

In 2010, the number of people aged 20 or under subject to the tax stood at 171, who had to pay a total of 418 million won.

The number has been decreasing from 434 in 2008 and 216 in 2009 due to relaxed regulations that have lowered the assessment standard.

Under the current taxation system, each household with a house valued at 600 million won or more and land worth 500 million won or more has to pay the tax.

Tax authorities said people try to transfer wealth to their children at an early age to reduce gift taxes on the grounds that the value of the donated assets is expected to grow in the future.

“Parents pass their wealth in the form of stocks or real estate to their children when they are very young, expecting the value will skyrocket. It could save them a huge amount in gift tax because tax rates are set on the current value,” an official from the NTS said.

Experts say such wealth transfer practices by the rich will result in reducing social mobility, arguing the tax law should be reformed to effectively crack down on gift tax dodgers.