Home (Japanese)National Tax Agency JAPANOthersNotification of National Tax>No.15003 Selecting taxation system for settlement at the time of inheritance

No.15003 Selecting taxation system for settlement at the time of inheritance

1 Overview of the system

The taxation system for settlement at the time of inheritance is a system for gift tax, which can be applied in principle when parents or grandparents who are 60 years old or older donate a property to their children or grandchildren who are 20 years old or older. To select this system, it is necessary to file a return for gift tax with certain documents attached, between February 1 and March 15 of the year following the year in which the property was received by donation.

Once this system is selected, it will be applied to all properties donated by the donor related to that selection from the year in which the system was selected, and cannot be changed to the calendar year taxation system. (Note)

In addition, when parents or grandparents who are the donors under this system pass away, the inheritance tax amount will be calculated by adding the value of the donated properties to which this system is applied (market value at the time of donation) to the value of inheritance. Please refer to "4 Calculation of tax amount" for the actual calculation method for gift tax and inheritance tax.

As mentioned above, the taxation system for settlement at the time of inheritance is a system of taxation for gift tax and inheritance tax.

(Note) Please refer to "40 Cases where gift tax is imposed" for details of the calendar year taxation system.

2 Eligible donors and recipients

The donor should be parents or grandparents who are 60 years old or older and the recipient should be the presumptive heir or grandchildren of the donor's lineal descendant (children or grandchildren) who are 20 years old or older as of January 1 of the year in which the property is received by donation.

3 Eligible properties

There are no restrictions on the type and value of donated property, or the frequency of donation.

4 Calculation of tax amount

(1) Calculation of gift tax
The gift tax on the donated property under the taxation system for settlement at the time of inheritance is calculated based on the total value of property donated in one year, and is separated from the property donated by other people than the donors related to the taxation system, effective from the year of selecting the taxation system.
The amount of gift tax is calculated by multiplying the total value of donated property after deducting the special credit that can be used for multiple years (the credit limit is 25 million yen. However, if this special deduction has been applied in previous years, the remaining amount will be the credit limit.) by the uniform tax rate of 20%.
With respect to a property that was donated by other people than the donors related to the taxation system for settlement at the time of inheritance to a recipient who has selected the taxation system, the amount of gift tax is calculated by deducting a basic exemption of 1.1 million yen under the calendar year taxation system from the total value of the donated property, and then applying the gift tax rate.

(Note) When calculating the amount of gift tax relating to taxation system for settlement at the time of inheritance, the basic exemption of 1.1 million yen under the calendar year taxation system cannot be deducted. Therefore, it is necessary to file a return for gift tax, even if the value of the donated property is less than 1.1 million yen.

(2) Calculation of inheritance tax
Inheritance tax for a person who selected the taxation system for settlement at the time of inheritance is calculated by deducting the amount of gift tax relating to that taxation system, which has already been paid, from the amount of inheritance tax that was calculated when the donor related to that taxation system passed away based on the sum of (1) the value of properties acquired by donation that is subject to that taxation system up to that point and (2) the value of properties acquired by inheritance or bequest.
In that case, you can receive a refund on the amount equivalent to gift tax related to the taxation system for settlement at the time of inheritance, which cannot be fully deducted from the amount of inheritance tax, by filing a return for inheritance tax
The value of the donated property to be added to the inherited property shall be the value at the time of donation.

5 Procedures for application

The recipients (children or grandchildren) who intend to select the taxation system for settlement at the time of inheritance shall be required to submit a "Report on the Selection of the Taxation System for Settlement at the Time of Inheritance" to the Tax Office with jurisdiction over the location of their address as an attachment to the return for gift tax, together with certain documents including the family register of the recipient. The report must be submitted between February 1 and March 15 of the year following the year in which the property related to the taxation system was first received by donation.
The recipients (children or grandchildren) may select the taxation system for settlement at the time of inheritance for each donor (parents or grandparents). However, once they have chosen this system, it will be continuously applied effective from the year of application until the donor passes away, and cannot be changed to the calendar year taxation system.