When considering the inheritance or transfer of high-value assets such as real estate, properly understanding and using gift tax deductions and tax-exempt systems is the key to significantly reducing the tax burden. Below is a practical overview of the main systems.
What are the main systems under which gift tax does not apply?
The annual 1.1 million yen basic exemption under the calendar-year taxation system
If the total gifts you receive between January 1 and December 31 in a given year are 1.1 million yen or less, no gift tax arises. Even if you receive gifts from multiple people, the basic exemption remains 1.1 million yen per year. The applicable tax rate is imposed on any amount above that threshold.
The 25 million yen special exemption under the settlement-at-inheritance taxation system
This system can be applied to gifts from parents or grandparents aged 60 or older to children or grandchildren aged 20 or older. Cumulative gifts of up to 25 million yen are exempt from gift tax, and because the system can be applied separately to each donor, using it separately for a father and a grandfather can make up to 50 million yen tax-exempt. However, settlement is required at the time of the future inheritance.
Spousal gift exemption for long-married couples
When one spouse gives residential real estate or funds for its purchase to the other spouse after 20 years or more of marriage, up to 20 million yen is tax-exempt (and up to 21.1 million yen is tax-exempt when combined with the 1.1 million yen annual exemption).
Special tax exemption for funds to acquire a home
This is a tax exemption system for gifts from parents or grandparents to fund the purchase or renovation of a home. Be aware that if you miss the filing deadline (February 1 to March 15 of the following year) by even one day, you may lose eligibility for the special exemption.
What is the difference between a deduction and a tax exemption?
Deduction: An amount subtracted from the total value of taxable gifted assets (example: the 1.1 million yen annual gift exemption)
Tax exemption: A gift that would ordinarily be taxable but is not taxed for policy reasons (example: the special rule for home acquisition funds)
Deductions and tax exemptions can be used together, but systems of the same type cannot be used in duplicate (deductions with deductions or exemptions with exemptions).
Gift tax calculation formula
【How to calculate gift tax】
① Total gifts received ー 1.1 million yen basic exemption ＝ taxable value
② taxable value × tax rate ＝ gift tax amount
The tax rate starts at 10% when the taxable value is 2 million yen or less, and rises to 45% for amounts exceeding 10 million yen up to 15 million yen.
Be careful of the risk that annual gifts may be treated as “multi-year gifts”
Even if you give 1.1 million yen each year, if the arrangement is judged to have been planned from the beginning, it may be treated as a multi-year gift and become subject to gift tax. Practical countermeasures include: ① preparing a gift agreement, ② transferring funds into an account managed by the recipient, and ③ changing the registered ownership of assets that require registration, such as real estate.
Related reading
Frequently asked questions (FAQ)
Q. Can the annual gift system and the settlement-at-inheritance taxation system be used together for the same donor?
A. For the same donor, these are elective systems, meaning you may choose only one. If you choose the settlement-at-inheritance taxation system, you cannot use the 1.1 million yen annual basic exemption for gifts from that same donor.
Q. What is the tax-exempt limit under the special exemption for funds to acquire a home?
A. It varies depending on the type of home (such as energy-efficient or earthquake-resistant housing) and the timing. Please confirm the latest limit on the National Tax Agency website or with your local tax office.
Q. By when must a gift tax return be filed?
A. The filing period runs from February 1 to March 15 of the year following the year in which the gift was received. Filing and payment must both be completed within that deadline.
Q. Which is more advantageous, gift tax or inheritance tax?
A. That depends on the size of the estate and the number of heirs. If the assets substantially exceed the inheritance tax basic exemption (30 million yen + 6 million yen × the number of statutory heirs), reducing the estate through lifetime gifts can be an effective tax-saving strategy. We recommend consulting a qualified professional.
