Inheritance Tax Cannot Be Levied Based Solely on Appraised Value After Land Price Increase

The Supreme Court has ruled that in cases where inherited real estate is appraised belatedly for taxation purposes, there must be no change in the property's value from the date the inheritance commenced to the date the appraisal report was prepared—not just until the value assessment reference date. On April 30, the Supreme Court's Special Division 2 (Presiding Justice Kwon Youngjun) upheld a partial ruling in favor of the plaintiff in a lawsuit (2024Du61780) filed by Mr. A against the head of the Mapo Tax Office to cancel the imposition of inheritance tax.

[Facts]

On April 9, 2019, Mr. A inherited a share of land in Seodaemun-gu, Seoul, following his mother's death. On October 15 of the same year, Mr. A assessed the inherited land at approximately 7.434 billion won based on supplementary valuation methods such as the individually announced land price and paid the corresponding tax.

In June 2020, the Seoul Regional Tax Office commissioned two appraisal firms to conduct an evaluation. Both firms prepared their appraisal reports in June 2020. In July 2020, Mr. A also commissioned two appraisal firms and received their reports. Both the tax authority and Mr. A set the value assessment reference date as October 10, 2019.

On December 1, 2020, the Mapo Tax Office determined the market value of the property to be approximately 11.5 billion won, calculated as the average of the four appraisals. Based on this, an inheritance tax of over 2.1 billion won was assessed and notified to Mr. A.

[Lower Court Rulings]

The court of first instance recalculated the value according to Mr. A's appraisals as of the date the inheritance commenced (the date of his mother’s death), determining the market value to be approximately 10.6 billion won, and canceled over 400 million won of the tax imposed.

The appeals court modified the first instance ruling, canceling only about 99.7 million won of the tax. This was because the court determined the market value to be approximately 11.3 billion won based on a court-appointed appraisal. The appeals court did not recognize the 11.5 billion won as the market price, citing a land price increase of about 3.7% from the inheritance commencement date to the value assessment reference date.

[Supreme Court Judgment]

- It is not contrary to the principle of tax legality or the principle of tax equality for the tax authority to commission a retroactive appraisal and impose tax within the statutory decision period.

- However, in order for the tax authority’s appraised value (approximately 11.5 billion won) to be recognized as the market value as of the inheritance commencement date, one condition must be met: there must be no particular circumstances indicating a change in value from the date the inheritance commenced to the date the appraisal report was prepared.

- The appeals court had determined that it was sufficient if there were no particular circumstances indicating a change in value only between the inheritance commencement date and the value assessment reference date.

- Although the premise of the appeals court was incorrect, its conclusion that the 11.5 billion won could not be considered the market value was valid. There was no error in the appeals court’s decision to recognize the market value based on the court’s appraisal results.

Reporter Lee Sangwoo, The Law Times

※This article is based on content supplied by Law Times.

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