Can Stock Gifts to Children Be Canceled? A 60s Investor Asks [Tax and Investment Q&A]

[Financial News] Investor A, in his 60s, has invested in stocks and financial products for many years, and the value of his assets has risen sharply. He now believes it may be time to reduce inheritance and capital gains tax burdens, so he is considering making gifts to family members. He asked how the taxable value of a stock or financial product gift is determined, since it seems different from a cash gift, and what he should watch out for.
According to KB Securities on the 26th, the two biggest differences between gifting stocks and gifting cash are whether an asset valuation is needed for gift tax purposes and whether the gift can be revoked.
Cash is simple. Without any valuation process under tax law, the transferred amount can be reported directly as a gift for gift tax purposes.
Listed domestic stocks, by contrast, must be valued using the average closing price on the Korea Exchange over a total of four months, including two months before and two months after the gift date. For example, if stocks are transferred as a gift on July 20, the value is calculated by adding up all closing prices on trading days from May 21 to September 19 and dividing by the number of trading days. Because of this, the gift value can only be determined after waiting two months after the gift date, once all closing-price data are available. Gift tax must then be reported and paid within three months from the end of the month in which the gift date falls.
If a gifted stock surges in price and the gift tax burden becomes too heavy, or if the price falls sharply and a lower valuation would be more favorable, the donor can use a revocation of the gift. If the gifted stock is returned to the donor within the gift tax filing deadline, the gift is treated as if it never occurred, and no gift tax is imposed on either the original gift or the return. Partial returns are also allowed, meaning a gift can be canceled in part. However, if the stock is returned after the filing deadline, the gift tax cannot be avoided, so meeting the deadline is crucial.
Cash gifts require extra caution because they cannot be revoked like stocks or financial products. Even if cash sent for gifting purposes is returned within the gift tax filing deadline, both the original transfer and the return are subject to gift tax.
Bonds can also be gifted. For listed bonds, the gift value is calculated as the higher of the average closing price over the two months before the gift date and the most recent closing price before the gift date. If stocks, bonds, or other assets temporarily fall in value because of market conditions, that period can be used as a gifting opportunity. A lower valuation can reduce the tax burden. If the market later recovers and the asset value rises after the gift, the gain belongs to the recipient, and no additional tax is imposed.
In the case of overseas stocks, the capital gains tax carryover basis rule has been introduced. For gifts made from 2025 onward, stocks received from a spouse or lineal ascendant or descendant are recognized at the gift-date valuation as the acquisition cost only if the recipient sells them after one year. If they are sold within one year, capital gains tax is calculated based on the original donor's acquisition cost, which can increase the recipient's tax burden.
The tax-law valuation of overseas stocks at the time of the gift is calculated in the same way as for domestic stocks. The difference is that exchange rates are applied. For overseas stocks, the four-month average is first calculated using the closing prices in foreign currency, and then the initial exchange rate announced on the gift date is applied to determine the final gift value in won.
Some people try to gift domestically listed overseas-investment ETFs as if they were overseas stocks. But in such cases, they should know that the recipient is subject to gift tax and the donor is also subject to dividend income tax.
Kim Hee-sung, a tax specialist advisor at KB Securities, said, "Because an ETF is a fund, it follows the taxation principle for fund holders." He added, "Gifting ETFs that invest in overseas assets, commodities, or bonds, in addition to domestic equity ETFs, is difficult to use as a tax-saving strategy."
When assets are gifted to family members, gift tax is calculated after deducting the gift tax exemption from the taxable gift value. Property received from lineal ascendants, such as parents or grandparents, qualifies for a combined exemption of up to 50 million won over 10 years, or 20 million won for minors. If the gift is received within two years before or after marriage registration, or within two years after the birth of a child, an additional 100 million won marriage and childbirth exemption can be applied. This covers not only cash but also financial assets such as stocks.
The [Tax and Investment Q&A] series, based on consultations with tax experts at KB Securities, is published every fourth week of the month.
[email protected] Park Ji-yeon Reporter