The ¥1.1 Million Annual Exemption in the Settlement-at-Inheritance System
A ¥1.1 million annual basic deduction has been newly added to the "settlement-at-inheritance taxation system", long considered hard to use — greatly widening its usefulness. We organize how it works and how to choose between it and calendar-year taxation.
- The basics of the settlement-at-inheritance system
- The effect of the new ¥1.1 million annual deduction
- The difference from calendar-year taxation, and how to choose
- What to watch when choosing
01What the settlement-at-inheritance system is
Settlement-at-inheritance taxation is a system you can elect for gifts from parents/grandparents aged 60 or over, in principle, to children/grandchildren aged 18 or over. Up to a cumulative ¥25 million, no gift tax applies at the time of the gift; it is settled together at inheritance (added back to the estate and calculated for inheritance tax).
Traditionally it had drawbacks: "once chosen, you cannot return to calendar-year taxation" and "filing is required even for small amounts".
02What changed with the new ¥1.1 million deduction?
The reform means that even if you elect settlement-at-inheritance taxation, you can now use an annual basic deduction of up to ¥1.1 million. This ¥1.1 million portion is free of gift tax and is also not subject to the add-back (settlement) at inheritance.
03Calendar-year vs settlement-at-inheritance — how to choose?
| Item | Calendar-year | Settlement-at-inheritance |
|---|---|---|
| Basic deduction | ¥1.1 million/year | ¥1.1 million/year (new) |
| Add-back | Adds back the 7 years before inheritance | The ¥1.1 million portion is not added back |
| Large gifts | The rate rises easily | No gift tax up to a cumulative ¥25 million |
| Changing | Choosable each year | Once chosen, cannot return to calendar-year |
Summary
A ¥1.1 million annual basic deduction was added to settlement-at-inheritance taxation, making it easier to use.
This ¥1.1 million is free of gift tax and add-back, suiting long-term lifetime gifting.
Since the choice against calendar-year taxation includes a one-time decision, weigh it with a specialist given your asset situation.
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Sources & References
This article is based on information available at the time of publication. Rules and systems may change. Please consult a professional before making any individual decisions.
