Settlement taxation system for inheritance: JPY 1.1 million annual basic deduction and JPY 25 million special deductionA way to receive property in one go, on the understanding that it will be settled later
Under the settlement taxation system for inheritance (相続時精算課税, sozokuji seisan kazei), gift tax is calculated at the time of the gift, and when the donor dies the gifted property is added to the estate to calculate inheritance tax. For gifts made on or after January 1, 2024 (Reiwa 6), an annual basic deduction of JPY 1.1 million is available. Once you elect it, gifts from that donor cannot be returned to calendar-year taxation.
- 1. Gifts in the yearTotal the year's gifts for each donor
- 2. Basic deductionSubtract JPY 1.1 million
- 3. Special deductionSubtract up to JPY 25 million cumulatively
- 4. Tax rateA flat 20% on the remainder
Key points
- The donor must be a parent, grandparent or similar aged 60 or over on January 1 of the year of the gift; the recipient must be a presumptive heir or grandchild aged 18 or over on the same date.
- Gift tax is calculated by subtracting the JPY 1.1 million annual basic deduction, then the special deduction (up to JPY 25 million cumulatively), and applying a flat 20% to the remainder.
- The election notification is due between February 1 and March 15 of the year after the first gift is received (attached to the return if a return is required).
- The special deduction applies only if the gift tax return is filed by the deadline.
- At the time of inheritance, the gift value minus the JPY 1.1 million basic deduction is added to the estate.
What to do in practice
- For each donor, consider whether calendar-year taxation or the settlement taxation system is more advantageous.
- If you elect it, submit the notification by the deadline and also file the gift tax return by the deadline.
When you receive a lot of property from a parent or grandparent, there is a choice where you pay a light tax now and recalculate everything together when the giver passes away. Once you choose it, you cannot go back to the original method.
- ○Applies: The giver is a parent or grandparent aged 60 or over on January 1 of that year
- ○Applies: The receiver is a child or grandchild aged 18 or over on that day
- ×Does not apply: You want to go back to the original method after deciding to use it
- ×Does not apply: You want to use it without submitting the notification form
Points
- Each year, no tax is charged on up to JPY 1.1 million of what you receive.
- Up to JPY 25 million in total, you can also have the tax put off (anything above that is taxed at a flat 20%).
- When the giver passes away, what you received is added to their property and calculated again, and the tax you paid earlier is subtracted.
What the words mean
- Settlement taxation system for inheritance
- A system where, when the giver passes away, what you received is added up and calculated again
- Notification form
- A document telling the government office that you will use this system
- National Tax Agency (NTA): NTA: Tax Answer No. 4103 Electing the settlement taxation system for inheritance (seisan kazei)
This article summarizes and explains materials published by government agencies and is not advice on any individual case. Rules can change, so for actual procedures and decisions always check the latest original materials and consult professionals such as tax accountants or labor and social security attorneys. English, Simplified Chinese and Traditional Chinese versions are translations prepared from the Japanese articles for convenience. If anything differs, the Japanese text and the original source take precedence.