Gift Tax question

[Tkydon]

So if I gift my wife 3.6 million per year for her NISA, none of that is taxable by the gift tax? All the best, D.

Don has explained that money to take care of everyday household costs is not considered a gift. I am pretty sure the NTA would not agree that investing in NISA can be included as living expenses.

It is up to you of course if you want to take the risk, but I suggest keeping it below the 1.1M and just taking longer for your wife to max out the new NISA.

If the wife is paying for living expenses, you can legitimately pay those living expenses, and she can keep her money for investment...
Assuming she is not receiving any Gifts from anywhere else, she can receive up to Y1.1M Tax free, and anything over that would be taxable.

If you gift her 3.6 million per year for her NISA, then Y2.5M would be taxable.

[Tkydon]

This table appears to need adjustment. How would a gift under 1,999,000, taxed at 10%, result in a maximum tax of 200,000 yen? How does a gift of 3,999,000, taxed at a rate of 15%, yield a maximum tax of 300,000 yen? Why do the bands all end with 999,000 when the NTA's tables specify an inclusive higher number for the maximum amount in each band (i.e., not 3,999,000 but 4,000,000 is the maximum taxable gift amount in the second band)?

You will see that the heading does not say Max. Tax. It says Max Tax in Band.

Anything below the Gift Tax Threshold is Taxed at 0%

Y1.1M x 0% => Max Tax in Band = Y0

Then the next band is Y2M wide from Y0 over The Tax free Y1.1M to Y2M over the The Tax free Y1.1M, so is Y2M wide and taxable at 10%

Y2M x 10% => Max Tax in Band = Y200,000

In this case (Filial Gifts), the next band is Y2M wide from Y2M over The Tax free Y1.1M to Y4M over the The Tax free Y1.1M, so is Y2M wide and taxable at 15%

Y2M x 15% => Max Tax in Band = Y300,000

You have to SUM the Max Tax In Band Numbers as you transition to the next Band

0 + 200 + 300 +....

The next band is Y2M wide taxable at 20% => Max Tax in Band = Y400,000

The next band is Y4M wide taxable at 30% => Max Tax in Band = Y1,200,000

and so on...

If you do not fill the band, then say Y1M taxable at 30% => Actual Tax in Band = Y300,000

You have to SUM the Max Tax In Band Numbers as you transition to the next Band

0 + 200 + 300 + 400 + the last 300 = Y1.2M Tax...

I will adjust my table.

Gift Tax Rates From Lineal Relatives (Parents, Grand Parents, etc.)
Band Marginal Tax rate (％) - Max Tax in Band Yen
Under 2,000,000 - 10% Y200,000
2,000,001 to 4,000,000 - 15% Y300,000
4,000,001 to 6,000,000 - 20% Y400,000
6,000,001 to 10,000,000 - 30% Y1,200,000
10,000,001 to 15,000,000 - 40% Y2,000,000
15,000,001 to 30,000,000 - 45% Y6,750,000
30,000,001 to 45,000,000 - 50% Y7,500,000
Over 45,000,001 - 55% No Limit...

And in the forms, the values are rounded to the nearest 1,000


The table you showed is also correct

If the Gift is Y8.1M, you deduct Y1.1M tax free, leaving Y7M

Y7M falls in the 30% Tax Band, so they make the calculation simple by applying 30% to the entire Y7M = Y2.1M
But then they provide a 'Mystery' 'Minus' Number that you deduct from that Y2.1M
The 'Mystery' 'Minus' Number accounts for the difference between the actual Tax Rate in each of the lower bands and the 30% calculated,
or, if you fall into the next Band, between the actual Tax Rate in each of the lower bands and the 40% calculated,
but I found that really didn't aid in my understanding what was going on or actually calculating the tax for myself...

Taxable band / Marginal tax rate (％) / Deduction / Max tax

Up to 2,000,000 / 10% / 0 / 200,000
2,000,000 to 4,000,000 / 15% / 100,000 / 500,000 [edit: correction here]
4,000,000 to 6,000,000 / 20% / 300,000 / 900,000
6,000,000 to 10,000,000 / 30% / 900,000 / 2,100,000
10,000,000 to 15,000,000 / 40% / 1,900,000 / 4,100,000
15,000,000 to 30,000,000 / 45% / 2,650,000 / 10,850,000
30,000,000 to 45,000,000 / 50% / 4,150,000 / 18,350,000
45,000,000 - / 55% / 6,400,000 / No Limit...

It does not make clear that 900,000 is actually calculated by

2M * (30%-10%) + 2M * (30%-15%) + 2M * (30%-20%)
for all the bands that are below 30%...

or that 1,900,000 is actually calculated by

2M * (40%-10%) + 2M * (40%-15%) + 2M * (40%-20%) + 4M * (40%-30%)
for all the bands that are below 40%...

or that 2,650,000 is actually calculated by

2M * (45%-10%) + 2M * (45%-15%) + 2M * (45%-20%) + 4M * (45%-30%) + 5M * (45%-40%)
for all the bands that are below 45%...


Of course, 10,000,000 * 30% - 900,000 = 10,000,000 * 40% - 1,900,000

[ClearAsMud]

[
It does not make clear that 900,000 is actually calculated by

2M * (30%-10%) + 2M * (30%-15%) + 2M * (30%-20%)
for all the bands that are below 30%...

or that 1,900,000 is actually calculated by

2M * (40%-10%) + 2M * (40%-15%) + 2M * (40%-20%) + 4M * (40%-30%)
for all the bands that are below 40%...

or that 2,650,000 is actually calculated by

2M * (45%-10%) + 2M * (45%-15%) + 2M * (45%-20%) + 4M * (45%-30%) + 5M * (45%-40%)
for all the bands that are below 45%...

I'm afraid I find the term "max tax in band" to be a bit confusing, though I get it that you like to work through the progressive marginal tax calculations yourself. The NTA table (along with almost all other online sources for calculating gift tax) is designed to make those calculations unnecessary by using a deduction instead. I prefer to take the easy way out myself.

Are you sure you have the correct result for the 45% band? There may well be no problem, but your "Max Tax in Band" numbers for all the other brackets actually match the difference between the highest possible tax and the lowest possible tax in each case, while this one doesn't (I get 10,850,000 - 6,750,000 = 4,100,000). Just to give you a little more work .

I was tempted to make a revised table that, like your adjusted one, started new bands with a +1 amount, but because of rounding, the taxable amount of a gift can never actually be, say, 2,000,001, so I hesitated. As you've noted, the taxable amount will always be rounded down to the nearest 1,000 (I can't remember now where I got the other 100-yen figure, so it's best forgotten). So in the event that you receive gifts totaling 3,100,500 yen, your tax is calculated on the basis of 3,100,500 minus 1,100,000 yen = taxable amount of 2,000,000 yen, putting you in the lowest gift-tax bracket. You remain in that bracket until your gift reaches 3,101,000 yen, at which point the taxable amount reaches the necessary 2,001,000 yen to push you into the next tax bracket. Your new table gets the point across, but it's not actually used in Japan because of the rounding process.

Isn't gift tax wonderful?

[Tkydon]

Are you sure you have the correct result for the 45% band? There may well be no problem, but your "Max Tax in Band" numbers for all the other brackets actually match the difference between the highest possible tax and the lowest possible tax in each case, while this one doesn't (I get 10,850,000 - 6,750,000 = 4,100,000). Just to give you a little more work .

It's the other way around

10,850,000 - 4,100,000 = 6,750,000

The Band is 15M wide x 45% = 6,750,000

just over three times the value for the 40% band which is only 5M wide at 40%.

[alberto]

There are certainly more alternatives than those A or B. By the way, cash exists... for the moment.

[Tkydon]

There are certainly more alternatives than those A or B. By the way, cash exists... for the moment.

Sorry, not sure to which part you are referring.

[Tkydon]

1) I'd say yes, if you're not planning to use the money to buy a house or land for one.

How does cash for buying a house or land affect gift tax? Is it untaxable? Different rate?

The answer is, it depends on where and/or from whom the cash came that you will use to buy the house or land.

There was a Lineal Gift Tax Deduction specifically for gifts from Parents or Grandparents specifically for the purchase of a residence, between 2015 and 2021. I'm not sure if that deduction will be offered again... ???

There is a Spouse Gift Tax Deduction specifically for a one time gift from a spouse of more than 20 years, specifically of property for a Primary Residence, or the funds for the purchase of a Primary Residence, of Y20M, so combined with the Personal Gift Tax Deduction of Y1.1M late in the year (Dec), and the Personal Gift tax Deduction of Y1.1M at the start of the next year, it would be possible to transfer Y22.2M tax Free for the purchase of a Primary Residence... The deadlines are very strict, and if they are missed, the entire Y20M would be subject to Gift Tax...

Any other gifts of funds to buy real-estate in excess of the Y1.1M per year deduction will be taxable at the Gift Tax Rates depending on whether the donor was a lineal relative or not.

[Beaglehound]

There are certainly more alternatives than those A or B. By the way, cash exists... for the moment.

Sorry, not sure to which part you are referring.

Am guessing he is referring to the OP and (somewhat controversially) suggesting that gifting in cash without declaring anything would avoid any issues.

[Tkydon]

There are certainly more alternatives than those A or B. By the way, cash exists... for the moment.

Sorry, not sure to which part you are referring.

Am guessing he is referring to the OP and (somewhat controversially) suggesting that gifting in cash without declaring anything would avoid any issues.

There are certainly more alternatives than those A or B. By the way, cash exists... for the moment.

Sorry, not sure to which part you are referring.

Am guessing he is referring to the OP and (somewhat controversially) suggesting that gifting in cash without declaring anything would avoid any issues.

I think we demonstrated that A is not correct. The Tax above Y1.1M is in bands, so would only reach 20% when the Total amount of Lineal Gifts in a particular year reached around Y9.6M

If the heir or beneficiary was the only beneficiary or heir in Japan, then the beneficiary or heir in Japan would be entitled to use the whole Y30M Basic Deduction or Y36M (Y30M Basic Deduction + Y6M per Statutory Heir) against the total amount inherited by all beneficiaries or heirs in Japan (one person), so completely free of inheritance tax well in excess of the Y25M limit of the Combined Gift / Inheritance Tax System in B.

And if they received a large amount of cash, or bank transfer, the money would have to be declared as it crossed the border if it exceeded Y1M, or if they tried to deposit a large amount of cash into a bank account in Japan, the bank would ask for information regarding the source of funds...

[Tkydon]

1) I'd say yes, if you're not planning to use the money to buy a house or land for one.

How does cash for buying a house or land affect gift tax? Is it untaxable? Different rate?

The answer is, it depends on where and/or from whom the cash came that you will use to buy the house or land.

There was a Lineal Gift Tax Deduction specifically for gifts from Parents or Grandparents specifically for the purchase of a residence, between 2015 and 2021. I'm not sure if that deduction will be offered again... ???

There is a Spouse Gift Tax Deduction specifically for a one time gift from a spouse of more than 20 years, specifically of property for a Primary Residence, or the funds for the purchase of a Primary Residence, of Y20M, so combined with the Personal Gift Tax Deduction of Y1.1M late in the year (Dec), and the Personal Gift tax Deduction of Y1.1M at the start of the next year (Jan), it would be possible to transfer Y22.2M tax Free for the purchase of a Primary Residence... The deadlines are very strict, and if they are missed, the entire Y20M would be subject to Gift Tax...

Any other gifts of funds to buy real-estate in excess of the Y1.1M per year deduction will be taxable at the Gift Tax Rates depending on whether the donor was a lineal relative or not.