What is inheritance tax and gift tax?
1. What is Inheritance Tax?
When an individual acquires property by inheritance or bequest (distribution of property by will) (including gifts on death), inheritance tax is imposed by the State on the acquirer (the heir or the person or legal entity to whom the property is distributed by will).
A gift on death is a gift contract between the donor and the donee.
Anything with an economic value is taxed. Examples of taxable items include financial assets, real estate, furniture, precious metals, jewellery, paintings, antiques, automobiles, copyrights, patents, trademarks, golf memberships and business property.
However, the following items are exempt from tax： (1) Cemetery and utility property (2) The portion of death insurance and death retirement benefits equal to 5 million yen x the number of legal heirs is exempt from tax.
2. Inheritance tax and gifts during life
Property donated by the deceased within three years before his death is subject to inheritance tax. However, the amount of gift tax already levied will be deducted from the inheritance tax.
3. Basic exemption for inheritance tax
30 million yen + 6 million yen x number of legal heirs
However, even if some of the legal heirs renounce inheritance, the number of legal heirs that would have existed if there had been no renunciation of inheritance applies.
（note） What are legal heirs?
Heirs of the first rank: If the deceased had children, the children and the spouse are the heirs. However, if the children predecease the deceased, the direct descendants (grandchildren, great-grandchildren, etc.) become heirs by descent.
Heirs of the second rank: If the deceased had no children or lineal descendants, the lineal ascendants (parents, grandparents, etc.) and the spouse are the heirs.
Heirs of the third rank: If the deceased has no children or direct descendants, and if the direct ascendants are deceased, then the brothers and sisters and the spouse are the heirs. However, if a brother or sister predeceases the deceased, his or her children (nephews and nieces) are the heirs.
The lower-ranking person has no right to inherit unless the higher-ranking person dies or renounces the inheritance. For example, if a child inherits the decedent’s property, the decedent’s lineal ascendants and brothers and sisters do not have the right to inherit. If the spouse predeceases the deceased, all the assets are inherited by the non-spouse heirs.
4. Spousal exemption for inheritance tax
If the spouse inherits less than 160 million yen or less than the legal share of the total estate, no inheritance tax is payable by the spouse.
5. What is gift tax?
Gifts of property between individuals are subject to gift tax. In the case of gifts of property from a company to an individual, income tax will be levied. In the case of a gift of property from an individual or a company to a company, corporate income tax will be levied.
6. Calendar year taxation of gifts
The gift tax is calculated by subtracting the basic annual exemption of 1.1 million yen from the total amount of property received by a person in a year and multiplying the remainder by the tax rate.
［For general gifts］(general tax rate)
This spreadsheet is used to calculate the gift tax for gifts that do not fall under the “special gift property” category.
For example, it is used for gifts between siblings, gifts between husband and wife, and gifts from a parent to a child where the child is a minor.
| The taxable value of the property received minus the basic exemption of 1.1 million yen | 2 million yen or less | 3 million yen or less | 4 million yen or less | 6 million yen or less | 10 million yen or less | 15 million yen or less | 30 million yen or less | Over 30 million yen |
| Tax rate | 10％ | 15％ | 20％ | 30％ | 40％ | 45％ | 50％ | 55％ |
| Deduction amount | ― | 100,000 yen | 250,000 yen | 650,000 yen | 1.25 million yen | 1.75 million yen | 2.5 million yen | 4 million yen |
［For special gift property］(special tax rate)
This spreadsheet is used to calculate taxable gifts from direct ancestors (grandparents, parents, etc.) to persons (children, grandchildren, etc.) who are 20 years of age or older on January 1 of the same year.
For the purposes of this table, persons aged 20 or over (children, grandchildren, etc.) on 1 January of the year in which the gift is received are limited to direct descendants of the person making the gift.
It is used, for example, for gifts from grandfather to grandchild or from father to son. (For example, it cannot be used for gifts from a husband’s father.)
| The taxable value of the property received minus the basic exemption of 1.1 million yen | 2 million yen or less | 4 million yen or less | 6 million yen or less | 10 million yen or less | 15 million yen or less | 30 million yen or less | 45 million yen or less | Over 45 million yen |
| Tax rate | 10％ | 15％ | 20％ | 30％ | 40％ | 45％ | 50％ | 55％ |
| Deduction amount | ― | 100,000 yen | 300,000 yen | 900,000 yen | 1.9 million yen | 2.65 million yen | 4.15 million yen | 6.4 million yen |
(1) Calculation for “general gifted property”
For example, this calculation method is used for the following types of gifts.
・A gift from a relative other than a direct ancestor (such as a husband, a husband’s father or a brother) or a someone who is not a relative
・If the gift was received from a direct ancestor, but the recipient is under 20 years of age as of January 1 of the year in which the property was given (in the case of a child or grandchild under 20 years of age)
(Example) If the value of the donated property is ¥5,000,000 (the “general tax rate” is used)
Taxable value after deduction of basis 5,000,000 yen – 1,100,000 yen = 3,900,000 yen
Calculation of gift tax ¥3,900,000 × 20% – ¥250,000 = ¥530,000
(2) Calculation for “special gifted property”
For example, if a child or grandchild who is 20 years of age or older as of January 1 of the year in which the property is donated receives a gift from his or her parents or grandparents, this calculation method will be used.
(Example) If the value of the gifted property is 5 million yen (using the “special tax rate”)
Taxable value after deduction of basis 5 million yen – 1.1 million yen = 3.9 million yen
Calculation of gift tax ¥3,900,000 × 15% – ¥100,000 = ¥485,000
(3) When it is necessary to calculate both “general gift property” and “special gift property”. For example, if you are 20 years of age or older and have received a gift from both your spouse and your parents, you will need to make this calculation.
In this case, the calculation is as follows：
（i） The amount of tax is calculated according to the proportion of “general gifted property” to the amount of tax calculated for all property at the “general tax rate”.
（ii） The amount of tax payable will be calculated based on the proportion of “special gifted property” in the total amount of tax payable, calculated using the “special tax rate” for all property.
（iii） The amount of gift tax to be paid is the total of 1 and 2.
(Example) Calculation for a case where the general gift is 1 million yen and the special gift is 4 million yen
（i） In this case, the tax is calculated as follows based on a total value of ¥5,000,000.
(The tax is calculated by treating all the donated property as “general donated property.)
5 million yen – 1.1 million yen = 3.9 million yen
3.9 million yen x 20% – 250,000 yen = 530,000 yen
(Of the above tax amount, the tax amount corresponding to general gifted property (general tax rate) is calculated as follows)
530,000 yen × 1 million yen / (1 million yen + 4 million yen) = 106,000 yen…1
The next step is to calculate the tax amount for the “special donation property” portion.
（ii） In this case, the tax is also calculated as follows, based on a total value of ¥5 million.
(Calculate the tax on all gifts as “special gift property”)
5 million yen – 1.1 million yen = 3.9 million yen
3.9 million yen x 15% – 100,000 yen = 485,000 yen
(Of the above tax amount, the amount of tax corresponding to the special donation property (special tax rate) is calculated)
485,000 yen × 4 million yen / (1 million yen + 4 million yen) = 388,000 yen…2
(Calculation of gift tax)
（iii） Amount of gift tax = 1 Amount of general gift property + 2 Amount of special gift property
In the above case, 1,106,000 yen + 2,238,000 yen = 494,000 yen… Gift tax
7. Spousal exemption for gift tax
A spouse who has been married for at least 20 years and who gives a gift of residential property or money for its acquisition is entitled to a deduction of ¥20 million. This exemption can only be used once for each spouse making a gift.
8. Special provision for taxation on settlement at the time of inheritance in the case of gifts of funds for home acquisition, etc.
A gift from a grandparent or parent to a child or grandchild aged 20 or over is subject to payment of gift tax at the time of the gift (the exemption limit is 25 million yen, with the excess taxed at 20%), and is settled by inheritance tax at the time of inheritance.
Main requirements
(a) The gift must be for the acquisition of a house (in cash).
(b) The floor area of the house to be acquired with the funds or the house after extension or renovation must be 50m2 or more, and at least half of the floor area must be for residential use.
(c) The age of the second-hand house must be within 25 years for fireproof houses and within 20 years for non-fireproof houses.
(d) Extensions and alterations can also be applied if the cost of the work is 1 million yen or more.
In addition, there is a measure to exempt from taxation up to a certain amount when receiving a gift of funds for the acquisition of a house, etc. from a direct ancestor (a temporary measure until December 31, 2021). The amount of the tax exemption varies according to the type of house to be newly built.
Below is the website in Japanese, if you need it.
