Is money transferred between family members taxed in Korea?

In a quiet residential neighborhood in Busan, the eldest brother, Kim Seontaek, the second brother, Kim Seonhyeong, and the youngest sister, Kim Seonmi, gathered for the first time in a while. However, this was not a joyful reunion.

"Oppa, I heard the tax office imposed a gift tax on you?"The youngest, Kim Seonmi, asked in a worried voice.

"Yeah. You both pooled your money and lent it to me, but the tax office says it was a gift."Kim Seontaek sighed heavily.

Five years ago, Kim Seontaek had been preparing to start a business. He had a solid idea and experience but lacked the necessary capital.

That was when his siblings stepped in to help.

"We’ll pool our money and help you. But you have to pay it back later."Kim Seonhyeong and Kim Seonmi each contributed their savings, lending a total of 320 million KRW to their eldest brother.

With that money, Kim Seontaek started his business, which was progressing smoothly. He had occasionally covered his siblings’ apartment maintenance fees instead of paying interest and had already repaid part of the loan. However, the unexpected imposition of a gift tax by the tax office became a serious problem.

When Kim Seontaek visited the tax office, he was met with a frustrating response.

"You don’t have a loan agreement? When a large amount of money is transferred between siblings without a loan contract, we consider it a gift by default."The tax officer stated firmly.

"But this was a loan from my siblings. I’ve already repaid part of it, and instead of interest, I’ve been covering their apartment maintenance fees."

The officer shook his head while flipping through the documents.

"There’s no official record of interest payments. Plus, there’s no clear repayment schedule. If it were a legitimate loan, there should have been a loan contract, and interest payments should have been made regularly."

Kim Seonhyeong interjected.

"Does family lending really require a loan contract?"

"Of course. Even if you are siblings, tax law applies the same way. If there’s no loan contract, it is assumed to be a gift."

Feeling frustrated, Kim Seonmi chimed in.

"But I saw on YouTube that up to 200 million KRW can be loaned without interest and without triggering a gift tax."

The tax officer let out a short laugh and shook his head.

"You shouldn’t rely on YouTube for tax advice. Many people end up paying extra taxes because of misunderstandings like that."

Kim Seonhyeong quickly responded.

"A tax accountant I know told me the same thing. He said that up to 200 million KRW can be loaned without interest without triggering gift tax."

The officer sighed.

"That only applies to interest. Whether the money itself is classified as a gift or a loan is a completely different issue. To prove it was a loan, there must be a loan contract and clear evidence of repayment. I don’t understand why some advisors explain it so vaguely."

The three siblings were dumbfounded. For years, Kim Seontaek had been busy growing his business, and his siblings had trusted him enough to lend their money. But now, simply because they had not drafted a loan contract, they were being told they had to pay a hefty gift tax.

As they returned home, Kim Seonhyeong spoke quietly.

"From now on, we need to be meticulous about paperwork when lending money to each other."

Kim Seonmi nodded in agreement.

"We should at least draft a loan agreement. Maybe even get it notarized and keep records of repayments. Otherwise, we’ll keep facing unfair situations like this."

Kim Seontaek let out a deep sigh.

"It’s good to trust family, but the tax office doesn’t trust us."

From that day on, the three siblings made a firm resolution—whenever money changed hands between them, they would always leave a paper trail.

Their bond as siblings remained strong, but they had learned a harsh truth: when it comes to taxes, the law takes precedence over trust.