NISA and gift tax

[Tkydon]

It's largely to prevent inheritance tax evasion I believe.

There should be no IHT between married couples either.

This is largely misunderstood (because it is so complicated)...

The Spouse can receive the Greater of Y160M + the Basic Deduction, or the Spouse's Statutory Share of the Estate + the Spouse's share of the Basic Deduction completely free of Inheritance Tax, no matter how large the Spouse's Statutory Share of the Estate...

The Spouse would only have to pay Inheritance Tax on any Inheritance Over Y160M and Over the Spouse's Statutory Share of the Estate + the Spouse's share of the Basic Deduction.

If the deceased is survived by a Spouse and two Children, the Statutory Shares would be 50% for the Spouse and 25% each for the Children, regardless of how the Estate is actually divided up.

The Spouse can receive the whole 100% of the Estate if it is below Y160M + the Total Basic Deduction = Y208M (currently about US$ 1.4M) completely Tax Free.

The Spouse can receive the greater of Y160M + a corresponding portion of the Total Basic Deduction (currently somewhere between US$ 1M and 1.4M)
OR 50% of the entire Estate completely Tax Free, no matter how large that 50%...

Only if the Spouse receives greater than Y160M and that Statutory Share of 50% of the entire Estate, does the Spouse have to pay any Inheritance Tax, and it is the Inheritance Tax burden that would have fallen on the Children's Statutory Shares of 25% each, that the Children would have had to pay if they had received their Statutory 25% instead of it going to the Spouse...

In Stage 2, the surviving heirs of the surviving Spouse, when the surviving Spouse dies (the Children), would incur the Inheritance Tax on inheritance of the full Estate, comprising the surviving spouse's estate and the surviving spouse's inherited assets in Stage 1, with a Tax Credit for any tax paid by the Spouse in Stage 1 if less than 6 years apart.

From that perspective, it is very important to plan Chain Inheritance, and it may be more beneficial in the final analysis for the non-spouse heirs to possibly inherit as much as possible from the first parent's Estate in Stage 1, when the number of Statutory Heirs and therefore the Total Basic Deduction is higherter and the total Tax Rate lower, to reduce the amount inherited in the Second Stage, when the number of Statutory Heirs and the Total Basic Deduction will be lower, and overall Inheritance Tax on the Estate would be greater in Stage 2 than in Stage 1.

[Deep Blue]

Unfortunately my wife will still have a substantial IHT bill, if (more likely when) I die first. It’s not a question of mis-understanding IHT.

The only way around this is for us to leave Japan for more than ten years and then to gift it to her outside of the purview of Japan’s gift tax regime.

I suspect my children may choose to renounce their Japanese nationality at 21 to get outside of this regime. It will certainly be a factor in their thinking I imagine. That’s another law than Japan should consider changing, it’s a relic of a bygone era.

[Tkydon]

A nice problem to have

[RetireJapan]

My family will also likely pay inheritance tax (unless I have a serious mid life crisis and develop some expensive hobbies).

I'm okay with that.

The purpose of inheritance tax is to prevent the rich (and if your estate is 300 million+ in Japan you are rich) from compounding their wealth over generations.

I think Japan's system is pretty balanced.

Of course if someone doesn't want to pay, they are completely justified in taking any legal options to avoid it, but I don't plan to leave Japan for decades. I like living here

[Deep Blue]

I guess it’s just a matter of perspective. Our family home is nothing particularly high end - it’s more than forty years old house in Shibuya-ku - not even one of the most expensive parts of Tokyo.

This alone puts us well into IHT, and many people need to sell off their family home to pay IHT. This doesn’t strike me as a great outcome of tax policy. Many others purposely invest in high end tower condos to help with tax planning, driving the prices up for everyone. Another fail in my book.

Maybe if the IHT rates were a bit more reasonable instead of 55% at the top end then people would try a bit less hard to avoid them and the overall outcome would be better for both the GoJ and the residents whose wealth they are confiscating.

Personally I like the idea of being able to give my children the best possible start/boost in life rather than having most of my estate consumed by the state. Others may well hold a different political view.

[sutebayashi]

The purpose of inheritance tax is to prevent the rich (and if your estate is 300 million+ in Japan you are rich) from compounding their wealth over generations.

I might get “rich” on my own, but I’ve also got this nice problem coming eventually as an heir.

I’m not sure how I could wisely spend so much money here in Japan.

But I will have to figure out a way, because I find that more acceptable than having wealth compounded by my parents and then me, than handed over to the spendthrift government.

I would much prefer to not squander the money. Ideally it would help generate happiness for future generations.

But if it is gonna to be squandered, it’s gonna be me that squanders it, not the government.

Or, I hope, I can arrange an exit at the right time. I just finished reading a book about “why the rich are congregating in New Zealand”. It’s almost a decade old, and it wasn’t 100% agreeable, but made me think there are definitely attractive enough places to retire to.

[RetireJapan]

Maybe if the IHT rates were a bit more reasonable instead of 55% at the top end

I wonder how many estates are paying the top rate, given that only around 7% of estates pay any inheritance tax at all?

How big would the estate need to be in order to pay 50%+ in tax? The 55% band only applies to the portion of the estate over 600m+the tax free allowance...

[eyeswideshut]

There should be no IHT between married couples either.

Totally agree!

[smalldog]

When it comes to taxes, inheritance tax is the one I WANT to pay.

Please - tax me less now and let me keep as much of my money as possible to spend on/with family whilst I’m here. If you need my money to fund the state then that’s okay… take it the day I die. My heirs have decades to earn once I’m gone and are still still getting an excellent head start vs the majority of society from my post tax funds.

Sadly for me Japan taxes to the max both the living and the dead.

[Tkydon]

Maybe if the IHT rates were a bit more reasonable instead of 55% at the top end

I wonder how many estates are paying the top rate, given that only around 7% of estates pay any inheritance tax at all?

How big would the estate need to be in order to pay 50%+ in tax? The 55% band only applies to the portion of the estate over 600m+the tax free allowance...

With Multiple Statutory Heirs, the Estate would need to be sized in excess of the Number of Statutory Heirs times Multiples of the Y600,000,000 Top Tax Bracket Threshold to get anywhere near...

If there are three equal Statutory Heirs (3 children) (33-33-33), each receiving Y616,000,000, then their individual Tax Rates would be

(Y600,000,000 x 55% - Y72,000,000) / Y616,000,000 = 41.88% after the Basic Deduction

so for that Estate of Y1,848,000,000 the Total Tax Rate on the Estate would only be 41.88%


For a Spouse and two Children, (50-25-25),
The Spouse's Statutory Share would be Y924,000,000 Tax Free

Each Child receiving Y462,000,000 would pay Inheritance Tax of
(450,000,000 x 50% - 42,000,000) / Y462,000,000 = 39.6%

The Tax Rate on the Total Estate would be only be 19.8%

However, the Spouse's Share would be hit when the surviving spouse dies...


If you double the size of the Estate

If there are three equal Statutory Heirs (3 children) (33-33-33), each receiving Y1,216,000,000, then their individual Tax Rates would be

(Y1,200,000,000 x 55% - Y72,000,000) / Y1,216,000,000 = 48.35% after the Basic Deduction

so for that Estate of Y3,648,000,000 the Total Tax Rate on the Estate would only be 48.35%


For a Spouse and two Children, (50-25-25),
The Spouse's Statutory Share would be Y1,824,000,000 - Still Tax Free...

Each Child receiving Y912,000,000 would pay Inheritance Tax of
(900,000,000 x 55% - 72,000,000) / Y912,000,000 = 46.38%

The Tax Rate on the Total Estate would be only be 23.19%

However, the Spouse's Share would be hit when the surviving spouse dies...


If you triple the size of the Estate

If there are three equal Statutory Heirs (3 children) (33-33-33), each receiving Y1,816,000,000, then their individual Tax Rates would be

(Y1,800,000,000 x 55% - Y72,000,000) / Y1,816,000,000 = 50.55% after the Basic Deduction

so for that Estate of Y4,848,000,000 the Total Tax Rate on the Estate would only be 48.35%


For a Spouse and two Children, (50-25-25),
The Spouse's Statutory Share would be Y2,424,000,000 - Still Tax Free...

Each Child receiving Y1,212,000,000 would pay Inheritance Tax of
(1,200,000,000 x 55% - 72,000,000) / Y1,212,000,000 = 48.51%

The Tax Rate on the Total Estate would be only be 24.26%

However, the Spouse's Share would be hit when the surviving spouse dies...


Therefore, it may be better for the children to receive significantly more than their Statutory Share in the first stage when the first parent dies, to significantly reduce their tax exposure in the second stage when the second parent dies... assuming the parent with the significant assets dies first.