Cabinet proposes estate tax changes to fix unfair pre-death gift rules

Taipei, July 31 (CNA) The Cabinet proposed an amendment on Thursday to close an estate tax loophole by holding pre-death gift recipients liable for taxes and allow such gifts to qualify for spousal deduction, aiming to resolve long-standing issues of fairness.

Under the current Estate and Gift Tax Act, gifts between spouses are exempt from gift tax. However, if such a gift is made within two years of the giver's death, it is legally counted as part of the total estate for tax purposes.

The rule previously allowed a woman, who received over NT$300 million (US$9.27 million) in stocks from her husband in 2016 less than a year before he died, along with their three children to completely avoid estate tax by renouncing their inheritance.

As a result, the husband's 6-year-old daughter born out of wedlock became the sole legal heir and was saddled with a NT$57 million estate tax bill, an amount that far exceeded the actual value of the assets she inherited.

In 2024, responding to a petition from the Taipei High Administrative Court, the Constitutional Court struck down parts of the law. The justices ruled that the framework violated the principles of equality and taxation based on ability to pay, and ordered legislative revisions.

Under the Cabinet's newly proposed rules, recipients of gifts made within two years of the giver's death must pay estate tax on those assets proportional to their share of the estate -- even if they decline to inherit -- with any remaining tax split among all heirs.

Beyond clarifying tax liabilities, the proposed amendment also addresses a separate grievance by counting gifts made by the deceased within two years before their death as part of the estate when calculating the spousal tax deduction, thereby lowering the surviving spouse's tax burden.

The amendment addresses another case reviewed in the 2024 constitutional ruling, involving a Taoyuan woman who received a parcel of land worth NT$130 million from her husband in 2016. He died less than two weeks later, leaving her with a NT$14.6 million estate tax bill.

The Constitutional Court ruled that it is unconstitutional to tax gifts given to a spouse before death while refusing to count them toward the spousal tax deduction, as this violates equality and overlooks the contributions made by both spouses to the family.

The Cabinet's proposal will be referred to the Legislature for review.