Gift Tax - Cash Gifts to Children

[Owl]

I would like to start making annual cash gifts to my 2 kids - both under 15. I have googled the subject and haven't found much detailed info - maybe that is because the tax agency has left things vague. I understand I can pay a max. of 1.1M Yen to each child in a calendar year without having to pay gift tax. Is it as simple as setting up kids bank accounts and depositing the money each year - or do banks or the tax agency have any red tape that needs to be observed? Is it necessary or desirable to set up a specific bank account dedicated to these gifts? If I paid the gifts in USD ( or other foreign currency - assuming that is possible) when is the FX rate set to calculate the 1.1M Yen limit? Is there any cap on the total amount that can be gifted - 100M, 200M? I have accounts with Prestia, Sony and Shinsei - has anyone any experience of setting up kids accounts with either of these banks, or have any other bank recommendations? Any other considerations, tips or advice?

[RetireJapan]

The children need to have their own bank account, and the safest thing tax wise is to have written documentation of the gifts. If old enough, the children should be aware of the money and get control when they are 18.

You can open a bank account for a child most places -my grandkids have accounts with JP Bank and Rakuten Bank.

You can open a minor investment account (未成年口座) with most brokers and invest in the child's name.

Usual caveats about US citizens apply, even for Japanese-US citizens.

[sutebayashi]

I understand I can pay a max. of 1.1M Yen to each child in a calendar year without having to pay gift tax. Is it as simple as setting up kids bank accounts and depositing the money each year

Just be clear that it’s the kids who would have to pay any gift tax on gifts above 1.1 million in a calendar year, not you. And the limit is on the recipient, not the giver - e.g. they cannot receive 1.1 m from you and 1.1 from some other giver, without becoming liable for gift tax on the total sum received.

There is no lifetime limit, it’s an annual limit. So effectively they could receive 1.1 million per year times the number of years you want to give to them (a bit lower actually since inheritance tax will likely come into the picture and gifts within certain number of years of inheritance get reclassified as part of the inheritance). 100m is out of the question as a result.

The other thing is, it needs to really be their money after you gift it. If you did dip into their accounts for your own expenses that would give the tax auditors the idea that you had just set up accounts in their name to evade tax.

For forex rates, you’d need to use the forex rate on the date of the gift. (With the weak yen these days 1.1 million yen doesn’t quite give the bang it used to does it…)

My kids have accounts with Sony bank. Those were easy to set up. They (I) have used them to channel their money into their investment accounts, upon receipt. They deposit their Otoshi-dama money there too.

[Owl]

There is no lifetime limit, it’s an annual limit. So effectively they could receive 1.1 million per year times the number of years you want to give to them (a bit lower actually since inheritance tax will likely come into the picture and gifts within certain number of years of inheritance get reclassified as part of the inheritance). 100m is out of the question as a result.

My kids have accounts with Sony bank. Those were easy to set up. They (I) have used them to channel their money into their investment accounts, upon receipt. They deposit their Otoshi-dama money there too.

Do you know how many years that look-back/reclassification period is? I was reading some stuff that was a bit vague and wasn't sure if it applied to gifts within 7 years, 4 years or 3 years of death.

I just checked Sony Bank re kids accounts, and on the English website they state you have to be 20 years old to open an account. Likely the Japanese website says something different for Japanese nationals.

[sutebayashi]

I recall the look back was extended to 7 years recently; it used to be 3 years.

Sony bank should still open kids accounts, if a parent agrees. Here is a little evidence.
https://sonybank.net/sustainability/childsupport.html

As for the gifting part, another thing to consider is giving more than the gift tax basic allowance, and having the kids pay some of it in tax. For example if they get a gift total of 5 million in a calendar year, then the tax due might be something like 10%. Do that for 10 years and it’s could be more tax efficient than ultimately having them pay inheritance tax - but it will depend on various circumstances. But since you are talking millions of dollars, starting sooner and gifting over a long period of time would seem to be the way to go.

[beanhead]

I just checked Sony Bank re kids accounts, and on the English website they state you have to be 20 years old to open an account. Likely the Japanese website says something different for Japanese nationals.

The English and the Japanese websites are indeed different. Very odd.
15 and over, according to this page:

https://moneykit.net/visitor/fx/fx43.html

https://moneykit.net/visitor/account/

I can vouch for the fact that under-20s can open an account at Sony Bank.