If you don't know, you could be subject to unexpected estate taxes!　What is a living gift addition?

Gift tax is a tax imposed on the transfer of property by way of gift, but special provisions exist for gifts made during one's lifetime. Among them.The "living gift addition" is an important rule that allows the gifted property to be added to the estate upon the donor's death.It is.Property donated during life is recalculated as inherited property at the donor's death.Therefore, it can have a significant impact on gift tax liability and inheritance tax calculations. This article discusses in detail the basic concepts of the living gift addition, the conditions for its application, and tax considerations, as well as how to effectively manage assets. This will provide you with important knowledge when planning gifts and inheritances.

　 　　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.

What is a living gift addition?

additional living donationis a system under which property donated during one's lifetime is added to one's estate upon the donor's death. Under the Japanese tax system, inheritance tax and gift tax work together to handle tax treatment of asset transfers. The living gift addition is a provision specifically designed to maintain fairness in the inheritance tax system, and provides a reconciliation between the gift tax and the inheritance tax.

Main Points of Additional Living Gifts

1. Purpose: To The main purpose of the living gift addition is,Prevent fraudulent attempts to use gifts to reduce estate tax liabilityThis is to. If the donor dies within a certain period of time, the gifted property is recalculated as inherited property to maintain fairness in estate taxes.
   
   
2. Periods to be credited:. Property donated within three years (seven years for gifts made after January 2024) prior to the date of the donor's death is eligible.This will be the case. Property donated within this period will be added to the estate.
   
   
3. Gift Tax Treatment:. Gift property subject to the living gift addition may already be subject to gift tax. In such cases, even after the gift tax has been paid, the gifted property will be added to the calculation of inheritance tax. In other words, the burden of gift tax and the burden of inheritance tax will overlap.
   
   
4. Method of addition:. The value of property donated during life is added directly to the estate. Since the property is revalued as inherited property and incorporated into the calculation of inheritance taxes, inheritance taxes may increase.
   
   
5. Countermeasures:. Donors and heirs should be aware of these provisions and fully consider the tax implications when planning gifts during their lifetime. It is recommended that professional tax and legal counsel be consulted in the detailed planning of gifts and estates.

Because living gift additions have a significant impact on gift and estate tax calculations, it is important to understand their meaning and impact when planning asset transfers.

Additions to donated assets under the taxation system for taxation on adjusted value at the time of inheritance

If an heir has elected the "taxation system for settlement at the time of inheritance" for a gift from a decedent (deceased person), the inheritance tax is calculated by adding the property gifted under the taxation system for settlement at the time of inheritance to the decedent's estate.

In this case, the value to be added is the value at the time of the gift.
If gift tax has been paid at the time of the gift, the amount of gift tax will be deducted from the inheritance tax. In addition, if the gift tax paid is greater than the inheritance tax due, the gift tax will be refunded.

Additions to Gift Property under the Calendar Year Taxation System

The calendar year taxation system for the addition of gift property is part of the system related to inheritance tax. Under this system, when an inheritance occurs, gifts made by the decedent (deceased person) within a certain period of time before his/her death are added to the inherited property and the inheritance tax is calculated.

Main Points

1. Period to be added
   Gifts made in the three years (seven years for gifts made after January 2024) prior to the decedent's death.are added to the estate in the calculation of inheritance taxes. The purpose of this is to prevent last minute gifts to avoid inheritance tax.
   
   
2. Applicable Gifts
   Within 3 years (7 years for gifts made after January 2024)The property is subject to the gift of property to the donor. The value of the donated property to be added to the estate is the value at the time of the gift.
   In other words, if a donor receives a gift of land with a market value of 10 million yen at the time of the gift, the value of the property to be added will be 10 million yen at the time of the gift, even if the market value is 20 million yen at the time of inheritance.
   
   If gift tax has already been paid at the time of inheritance, the amount of gift tax paid will be deducted as part of the inheritance tax. However, even if the gift tax paid is greater than the inheritance tax due, no refund will be made.
   
   
3. Eligible donors and donees
   The addition is applicable when the donor is both the decedent and the heir. In other words, gifts made by the decedent to the heirs are primarily eligible.

Exception

There are several exceptions to the addition of gift property. For example, gifts made under special programs such as tax exemptions for marriage, child rearing, and education funds may not be eligible for addition under certain conditions.

The purpose of this system is to prevent inheritance tax evasion and to provide a fair valuation of inherited property.

Revision of the calendar year taxation system for additions to gifted property

The amendments regarding the calendar year taxation system for the addition of gift property were made primarily to discourage gifts for inheritance tax purposes, and important changes were introduced in the tax reforms, especially for the years 2022 and 2023. These amendments have resulted in a reassessment of the relationship between gift tax and inheritance tax, and have restricted the techniques used to utilize gifts to avoid inheritance tax.

Major Revisions

1. Extension of additional period of eligibility
   Before the amendment,3 years before the start of inheritance The gifted property made in the previous year was added to the inheritance, but the gifted property made in the previous year was added to the inheritance,The period will be extended to seven years from January 2024.In other words, gifts made during the seven years prior to the start of inheritance are added to the estate and subject to inheritance tax.
   
2. Relaxation measures for gifts over 3 years to within 7 years
   Within 7 years after the 2024 revision,Gifts made more than 3 years before the start of inheritance (4-7 years before)The new law provides a relief measure that only a portion of the gift amount is eligible for the addition to the tax credit. This means that only a portion of the gift amount will be added, rather than the full amount.
   
   Specifically, a total of ¥1,000,000 will be deducted from gifted property (the extended portion) that has been added to inherited property for more than three years prior to the start of inheritance. This deduction is a time-limited measure that will expire on January 1, 2031.

Background and Objectives of the Amendment

The background of this amendment is,There is a government policy to prevent large gifts from being made as a means of estate tax prevention and to achieve a more equitable tax burden.The practice of reducing the amount of property subject to inheritance tax through gifts has been increasing, and as a countermeasure, the system has been revised to treat gifts and inheritances more integrally.

This revision will require individuals and families to take a longer-term perspective in gift planning and inheritance planning, and will require more careful asset management.

summary

How was it?

The transfer of assets during one's lifetime through the taxation system for settlement at the time of inheritance and calendar year gifts is an important system for leaving important assets to loved ones. On the other hand, legal changes aimed at fair taxation often result in unexpected inheritance tax burdens.
We recommend that you understand the various systems with the help of experts as early as possible and proceed with your inheritance planning.