My father wants to give me some money (around ¥12M). I have read about & am thinking of using the 'early inheritance system' to avoid paying gift tax on it next year.
My understanding of the system is:
- It allows up to ¥25M (+¥1.1M per year, since 2024) to be gifted tax free at the time of the gift.
- Those gifts are added to the total inheritance when that time comes.
- Anything above the ¥25M allowance is taxed at a flat 20% gift tax.
- Any gift tax paid is deducted from inheritance tax due when that time comes.
- Once you opt in, it is permenant, any further gifts from my father must be counted into this system.
I have one question regarding the details:
- Since 2024, it seems that the standard ¥1.1M gift tax exemption is preserved even when this system is used. Is that ¥1.1M per year also removed from the total added to the inheritance?
And a couple of broader questions:
- Is there any disadvantage to me using this system? (as far as I can see, the disadvantage is that I will be filling my 'Inheritance tax-free allowance" early. If I expect to overflow that allowance, then I would pay a flat rate 20% on anything above it. If I could structure the gifts to pay gift tax at a lower rate than 20% then it would make sense to just pay gift tax now, and preserve my tax free allowance for inheritance? (This is kinda confusing me, and I have no idea how much I might recieve at time of inheritance.)
- How do you actually 'activate' the system? Is it just something filled in on the annual tax return come March? Are there additional forms etc that need to be submitted alongside the tax return?
- Have you, or are you aware of any other foreign residents who have actually used this system?
Thanks for any help & clarification!
by Hearthian-Wanderer