Inheritance Tax Prevention (1) Use the calendar year taxation system to wisely bequeath your property to the next generation. Basic Knowledge of Gift Taxes

Living Gifts are,How an individual distributes his or her own assets to family members or loved ones prior to death.It is attracting attention as a means to reduce the burden of inheritance taxes and ensure smooth asset transfers, but knowledge of the tax system and laws is required,Planning and preparation are required.This article will explain in detail the benefits, precautions, and specific procedures for making gifts during one's lifetime. Aim for amicable property succession with your family through appropriate asset management.

  　This article is intended to provide an introduction to the general basics of inheritance tax.
  　Consult a tax attorney for individualized and specific inheritance tax advice and calculations.

Basic Knowledge about Giving

What is a gift?

A gift is a contract that takes effect when one party (the donor) expresses the intention to give property to the other party (the donee) without consideration and the other party accepts the gift.

• It is established by the agreement of the donor and the donee. Therefore, no written document is required.
• A verbal (not written) gift contract can be terminated at any time prior to performance (before the gift is made).
• A written gift is effective as of the time the contract takes effect (the date of the contract).

Type of gift

• simple donation: The decision is made for each gift agreement.
  
  
• regular (fixed-term) donation: A gift contract that promises to make certain gifts on a regular basis for a specified period of time, etc.
  
  
• tax-included giftGift contracts that place certain burdens on the donee, such as taking care of the donor in his/her old age, in exchange for the donation.
  
  
• deathbed adoption of a successor (to prevent extinction of the family line): A prenatal agreement whereby the gift becomes effective on the condition that the donor dies.
  
  
• legacy: A gift in which the donor unilaterally declares his/her intention through a will.

Basic Knowledge of Gift Taxes

Purpose of the Gift Tax

The purpose of the gift tax is to tax gifts of property made between individuals to correct inequalities in income and assets. Specific objectives are as follows

1. Preventing the concentration of wealth: To prevent excessive concentration of wealth in the hands of certain individuals or families and to ensure that wealth is distributed more equitably across society as a whole.
   
   
2. Prevention of tax avoidance: To discourage attempts to use gifts to avoid estate taxesThe gift tax and inheritance tax are administered in an integrated manner to prevent unjustified tax avoidance.
   
   
3. Securing tax revenue: To ensure that the government receives adequate tax revenue as property is transferred. Taxation is especially levied when large amounts of property are transferred by inheritance or gift.

Thus, the gift tax plays an important role in the equitable distribution of assets and as part of fiscal policy.

Gift and inheritance taxes

If a person dies leaving property that exceeds the basic inheritance tax exemption amount, heirs who acquire property from the deceased will be subject to inheritance tax. However, if all property is transferred before death, no inheritance tax is payable.
Therefore, as mentioned in 2. above, as a function of deterring attempts to avoid inheritance taxes,Gift tax is imposed for the purpose of supplementing the estate tax.

Taxable and non-taxable assets for gift tax purposes

Gift tax is imposed on the total amount of the following property (economic benefit) acquired by gift between January 1 and December 31 of the current year, minus any exempt property.

Items subject to gift taxation

• Original gift property: All items with economic value that can be estimated in money, such as cash, land, and buildings acquired through a gift, are taxed as original gift property.
  
  
• constructive giftThe same effect as a gift in effect, death benefits, maturity refunds, individual annuities, etc., of a life insurance policy whose premium bearer is different from the beneficiary are taxed as a gift from the premium bearer to the beneficiary.
  
  
• low-cost acquisitionIn cases where property is transferred at an extremely low value, such as when land with a market value of 10 million yen is transferred for 1 million yen, the difference between the market value of the property at the time of transfer and the transfer price is considered a gift and gift tax will be imposed.
  
  
• debt forgivenessThe amount of the debt is taxable if the debt is forgiven or shouldered by the borrower. (The amount of the debt is not subject to tax if the debtor's support obligation is not repayable.)
  
  
• Loan of money without interestThe interest portion of a loan between a husband and wife, parent and child, etc., is considered a gift and subject to gift tax.

Items not subject to gift taxation

The following is a list of gifts and deemed gifts that are not appropriate to be subject to gift taxation from a policy standpoint, etc."Gift tax exempt property."The following is stipulated as follows

• Property acquired as a gift from a corporation (which would be temporary income or employment income)
• Living expenses, educational expenses, etc., received as gifts from parents or other persons responsible for support
• Incense, gifts, sympathy, congratulatory money, etc., as deemed necessary for social gatherings
• Up to a certain amount of trust beneficiary interests based on a specified disability dependency trust agreement
• Property donated by a candidate in an election under the Public Office Election Law in connection with a campaign
• Property acquired by donation by a person who operates a religious, charitable, academic, or other business for public benefit, and which is certain to be used for public benefit projects.
• Entitlement to benefits under the Mutual Aid Program for the Mentally and Physically Disabled
• Property acquired through the division of property in a divorce
• Gifts subject to inheritance tax

Calculation of gift tax

Basic gift tax credit

The basic exemption amount for gift tax is 1.1 million yen.

If the taxable value exceeds the basic allowance of 1.1 million yen, the excess amount is subject to taxation.
The basic exemption amount is 1.1 million yen per year for each person who received the gift. It is not the person who made the gift. In other words, if a parent gives a gift of ¥1.1 million to his/her first son and ¥1.1 million to his/her second son, there is no gift taxation.

In other words, property can be transferred to the next generation without paying gift tax up to this basic exemption amount.

Note, however, that gifts made during a certain period of time from the time of inheritance are subject to inheritance tax under the calendar year taxation system, which adds to the value of the gifted property.

How to Calculate Gift Taxes

Amount of tax to be paid = (taxable value - basic allowance of 1,100,000 yen) x tax rate - credit amount

Inheritance Tax Prevention Using Gift Tax Exemptions

By taking advantage of gift tax exemptions, you may be able to reduce the tax burden of gift taxes and future inheritance taxes, even when large property transfers occur. Knowing the special exception systems applicable to various situations, such as gifts of funds for home purchases and lump-sum gifts of education funds, will help you plan your future assets more efficiently. This article explains the special exceptions to gift tax that you should be aware of.

The taxation system has been frequently revised. The following is an explanation of the systems in effect as of October 2024.

Spousal Deduction for Gift Taxes

If you receive a gift from your spouse of residential real estate or funds to purchase residential real estate that meets the following requirements, the amount of the giftIn addition to the basic exemption of 1.1 million yen, a spousal deduction of up to 20 million yen can be applied.
In addition, with respect to the donated property under this special exception, the portion equivalent to the deducted amount (up to 20 million yen) will be treated as a "gift.additional living donationThis is not subject to the "1.

Application Requirements

• The marriage must have lasted at least 20 years.
• Residential real estate (land, house or money to purchase residential real estate) where the donated property is located in Japan
• The donor must reside in the residential property by March 15 of the year following the year in which the gift is received and be expected to continue to reside there thereafter.
• Not have received this special exception in the past from the same spouse.

Filing of tax returns

Even if the gift property is less than ¥21.1 million (¥20 million spouse exemption + ¥1.1 million basic exemption) and the gift tax after the special exception is applied is zero, a gift tax return must be submitted in order to qualify for the special exception.

Special provision for gift tax exemption for gifts of funds for home acquisition, etc. received from lineal descendants

If you acquire funds for home acquisition through a gift from a direct ancestor (parents, grandparents, etc.) and meet certain requirements, the basic exemption amount of 1,100,000 yen orSpecial deduction of 25 million yen for the taxation system for settlement at the time of inheritanceIn addition to the above, the following tax-exempt amount of funds for home acquisition is exempt from gift tax up to the following tax-exempt limit. In addition, the donated assets that are exempted from taxation under this special exception will be listed in the "Gift Tax Exemption" section of the "Gift Tax Exemption" section of theadditional living donationIt is not even subject to the "I'm sorry.

tax exemption limit

In addition to the basic allowance for gift tax and the special allowance for the taxation system for settlement at the time of inheritance, gifts made before the end of December 2023 will be subject to the "Gift Tax Exemption" (the "Gift Tax Exemption").Up to 10 million yen for energy-efficient housing and up to 5 million yen for other housingGifts at the beginning of the "I" are exempt from taxation.

Application Requirements

• The donee (the person to whom the property is transferred) shall be entitled to receive the funds in the year in which they are received.The donor must be 18 years of age or older on January 1 and have a total income of 20 million yen or less for the year in which the gift is received.
• The gift must be a gift of funds for home acquisition, etc. as follows
  • Funds for the construction or acquisition of a new home
  • Funds for the acquisition of certain existing homes
  • Funds to acquire land, etc. to be used for the site of a new house, etc. prior to the construction of a new house, etc.
  • Funds for certain additions and renovations with a construction cost of 1 million yen or more
• The donor must build, acquire, expand, or renovate the property and reside or expect to reside there by March 15 of the year following the year in which the gift is received.
• ApplicableResidences are between 50m2 and 240m2 in floor area(If the donor's total income for the year in which the gift is received is 10 million yen or less, the floor area must be 40 square meters or more)
• For existing houses, the house must conform to the new earthquake resistance standards.
• To file a gift tax return with the prescribed documents.

Exemption from gift tax on lump-sum gifts of education funds

Lump-sum gifts of education funds to children and grandchildren made between April 1, 2013 and March 31, 2026 will be exempt from gift tax up to a certain amount if the gift meets the applicable requirements. (Tax reform for the fiscal year 2023)

Eligible Education Funds

The main expenses that qualify as education funding are

• Tuition (entrance fee, tuition, facility fees, etc.)
• textbook fees
• Expenses required for off-campus activities (e.g., club activities)

Application Requirements

The following conditions must be met (amended in 2023)

• In principle, the recipient of the gift (the donee) must be under 30 years of age and the donee's income in the year prior to the gift must be 10 million yen or less.
• The person making the gift (the donor) must be a direct ancestor (parent or grandparent) of the donee.
• When making a lump-sum gift, it is necessary to enter into a gift agreement and specify that the gift is to be used for educational purposes.
• It must be verified that the funds from the gift are to be used for the donor's education (e.g., receipts kept on file)

tax exemption limit

Up to 15 million yen per donee (up to 5 million yen for lessons, etc.) (2023 tax reform)
There is a maximum tax exemption amount for lump-sum gifts. Specific amounts may change as laws and regulations are amended, so it is important to check the latest information.

Exemption from gift tax on lump-sum gifts of marriage and child-rearing funds

Lump-sum gifts of marriage and child-rearing funds to children and grandchildren made between April 1, 2015 and March 31, 2025 are exempt from gift tax up to a certain amount if the gift meets the applicable requirements.

Eligible Funds

The following funds are eligible

• wedding fund: Expenses necessary for the marriage (e.g., wedding expenses, funds needed to purchase or rent a home, etc.).
• child-rearing fundsExpenses related to child rearing (e.g., childcare supplies, fees for enrollment in or attending daycare or kindergarten, etc.).

Conditions for Tax Exemption

The following conditions must be met (amended in 2023)

• doneemust be between the ages of 18 and 50 in principle and have a total income of 10 million yen or less in the year prior to the gift.
• donorare immediate family members (parents or grandparents) of the donee.
• tax exemption limitis set, and gifts within that range are eligible. Specific amounts may change as laws and regulations are amended, so it is important to check the latest information.
• donation contractand must specify that it is to be used for marriage or child rearing.
• proof of useAs such, you must keep documentary proof (e.g., receipts) that confirms that the funds were indeed used for marriage or child rearing.

tax exemption limit

10 million yen per donee (amended in 2023)
Tax exemption limits for lump-sum gifts of marriage and child-rearing funds vary according to laws and regulations. Since there may be specific amounts or changes, we recommend that you check with your tax office or specialist for the most up-to-date information.

Notes on Giving

Under civil law, a gift is established when the donor's intention to "give" and the donee's intention to "receive" match. However, it is advisable to take the following measures to avoid problems after inheritance occurs and to avoid being subject to gift and inheritance taxes.

• Prepare a gift agreement. Prepare a legally valid gift agreement with the help of an administrative scrivener or other professional.
• Daring to make a gift in excess of ¥1,100,000 per year and filing and paying the gift tax will serve as evidence of the gift.
• Beware of nominal deposits. A "nominal deposit" is a deposit account that is in the name of the child, but is actually managed by the parent. The tax office determines ownership based on the substance, not the name.

summary

How was it?

Gift tax is a tax imposed when a donor transfers property to a donee through a gift. Under Japanese tax law, a gift tax is imposed when the amount of a gift exceeds a certain threshold. The tax rate and standard amount of the gift tax vary depending on the amount of the gift, and there are various special exemptions. Since the system is subject to frequent revision, a tax accountant should be consulted for detailed tax calculations.

Gift tax rates are generally lower than inheritance tax rates, and it may be possible to avoid inheritance taxation by successfully using gifts to transfer property to children or grandchildren before death. It is recommended that you learn about the system and take measures against it at an early stage, along with the preparation of a will.