Tax implications of gift and inheritance exemptions

Tax regulations regarding gift and inheritance taxes involve specific rules for exemptions and calculations. Under the calendar year taxation system, there is a basic deduction of 1.1 million yen per year. Gifts totaling this amount or less are generally not subject to gift tax and do not require filing, provided no other taxable gifts were received in the same year.

However, funds received for living expenses are only tax-exempt if they are used immediately for their intended purpose. If surplus living expenses are saved, invested in stocks, or used to purchase real estate, those amounts may be subject to gift tax.

Regarding inheritance tax, recent changes to the law have extended the period for which gifts made prior to death must be added back to the taxable estate. For gifts made under the calendar year taxation system starting January 1, 2024, the period for adding these gifts back to the inheritance calculation is being phased in from three years to seven years. Consequently, gifts made shortly before death may still impact the total inheritance tax liability, even if they fell within the annual 1.1 million yen gift tax exemption.