In general, when the stock price of a listed stock falls, there is a strategy that large conglomerates most often use. It is a stock transfer for the purpose of succession. In normal times, a lot of taxes are involved in gifting stocks for the purpose of succession of management, so when the economy is bad or stock prices are falling, stocks are donated at a low price.
The same goes for real estate. Real estate also tends to be passed down to the next generation during the IMF or financial crisis when prices fell significantly compared to normal amounts. In particular, in recent years, as the government has viewed real estate rental companies as evildoers and changed policies unfavorably, there has been a flurry of donations from building owners who previously owned expensive buildings.
*Lock-in effect: It is called the lock-in effect in the sense of locking in customers. This phenomenon mainly occurs when switching costs are high while moving to another service.
This is because it is advantageous to implement it right before the system is implemented due to the taxes that must be paid after it is implemented.
When dealing with real estate brokerage, there are cases where the brokerage is successful, but there are many cases where the brokerage fails for one reason or another. At this time, real estate succession is a good compatibility as a strategy to maintain relationships with customers and lock in long-term. This is because there has been a certain amount of time at which a transaction cannot be concluded, both for real estate owners with items for sale and customers with purchase funds.
First of all, in the case of private rental building owners who have buildings that are not selling well, if we review the succession strategy, there are only a few cases under the current situation. You can sell it and give it as cash, or you can choose to give it as a gift with a bank loan, or if you do not have a loan, the most common way is to give it as a gift.
In the case of sale, you have to pay a transfer tax of 45% and pay the bank loan, and when you donate it with the remaining cash, you pay a tax of 50% and there is virtually nothing left. The second option, gift with real estate burden, reduces the tax burden, but only slightly compared to the third option, gift tax burden. If you look at the taxes incurred when gifting real estate worth more than 10 billion won, it is not at a level that a child can pay. Moreover, these days, loan interest exceeds the tax burden.
Since the buyer has cash, more diverse succession strategies can be developed if the purchase has not yet been completed. Compared to real estate, cash is a liquid asset, so relatively flexible design is possible. However, as an individual, there are limits to whether lending or gifting cash between parents and children. In this case, a family corporation centered on children can be used. Even if a parent acquires real estate by paying cash directly, they will have to consider succession to real estate at least once in the future, but if they have cash, it is a good idea to consider succession in advance and use a corporation in which the child is a shareholder.
Continued to next issue.
Star, a World Class Korea company, is a consulting brand that aims to provide diverse and convenient services to tax accountant customers by strengthening the service capabilities of tax accountants and connecting them with a network of experts in other fields so that tax accountants can become the center of consulting.
