Early Inheritance Tax (相続時精算課税)

Gift tax is very expensive in Japan. You can see the tax rates as follows. It can even be prohibitive.

Net taxable gift after base deduction Under 2M JPY Under 3M JPY Under 4M JPY Under 6M JPY Under 10M JPY Under 15M JPY Under 30M JPY Over 30M JPY
Tax Rates 10% 15% 20% 30% 40% 45% 50% 55%
Deduction -0.1M -0.25M/td> -0.65M -1.25M -1.75M -2.5M 1.0M

Your parents may want to give their estate before they pass away and when you are still young to spend on something (e.g. children’s education, business investment, etc). But the gift tax is so expensive. What to do?

One solution is Early Inheritance (相続時精算課税).

You can choose to file your gift tax in future as Early Inheritance. The tax is free upto the first 25MM yen. Any gift after 25MM yen will be subject to 20% advance tax. If the total money you have received as an early inheritance is 50MM yen, the advance tax will be 5MM yen ((50M-25M) * 20%). Then, you will calculate your inheritance by the normal method and pay the difference if the actual tax is higher than the advance tax or you will receive a refund if the advance tax is higher.