Is gift tax imposed when paying consolation money in divorce?

First, you need to look at it by distinguishing between the person receiving consolation money and the person paying consolation money.

For the person receiving consolation money, consolation money is a type of damages compensating for mental distress due to divorce, and the payment of consolation money does not constitute a gift under Article 2, Item 6 of the Inheritance Tax and Gift Tax Act.

Therefore, since this does not fall under gift tax imposition, which is a tax imposed on gifted property, you do not need to worry.

However, in cases where it is recognized as a substantive gift, such as a sham divorce for the purpose of tax evasion, gift tax may be imposed.

In addition, consolation money does not constitute income under Article 4 of the Income Tax Act. Therefore, income tax, which is a tax imposed on income, is not an issue.

Looking at your situation, when you receive ownership transfer of real estate as consolation money, you must pay acquisition tax, local education tax, and special tax for rural areas under the Local Tax Act.

When real estate is received as consolation money, it is regarded as a gratuitous acquisition other than inheritance, so it is correct that an acquisition tax of 3.5% applies. Since the value of assets is transferred along with the transfer of real estate ownership, and this can be regarded as substantively similar to a sale, capital gains tax is imposed.

If you are in the position of transferring ownership of real estate as consolation money, you have obtained the economic benefit of consolation money and the extinguishment of child support payment obligation as consideration for transferring that real estate, which corresponds to a paid transfer under the Income Tax Act, so if capital gains have arisen, you must pay capital gains tax.