This is a translation of the Japanese original. The Japanese version is authoritative; figures follow Japanese tax law.
A gift from a parent to a child can be taxed in one of two ways: calendar-year taxation (暦年課税) or the settlement-at-inheritance system (相続時精算課税). The 2024 reform gave both a basic exclusion of ¥1,100,000 a year, and that changed how you should choose. Under calendar-year taxation, the ¥1,100,000 is added back into the estate for the seven years before death. Under the settlement system, the ¥1,100,000 never comes back, no matter how many years earlier it was given. The catch is that the settlement system cannot be revoked once elected, and land given under it loses the small residential land valuation reduction (小規模宅地等の特例). This article puts the two systems in a single table and sorts out which one pays, along three axes: the parent's age, the size of the gift, and the kind of asset, using National Tax Agency (NTA) materials and worked numbers.
The short answer: three questions decide it
| Your situation | The system that suits you | Why |
|---|---|---|
| Your parent is 70 or older and you want to receive ¥1,100,000 a year | Settlement at inheritance | Gifts of ¥1,100,000 or less never return to the estate. Under calendar-year taxation the last seven years come back |
| Your parent is in their early 60s and there are 20 years or more to work with | Calendar-year taxation | Anything more than seven years back does not return. It also works for a grandchild who is not an heir. There is no need to elect a system you cannot undo |
| You want to transfer the family home or business land | Calendar-year taxation (or wait for the inheritance) | Land given under the settlement system cannot use the small residential land valuation reduction (up to 80% off) |
| You want to hand over assets of the ¥25,000,000 class in one go | Settlement at inheritance | No gift tax up to a cumulative ¥25,000,000, and a flat 20% above that. Calendar-year taxation goes up to 55% |
| You want to transfer shares or property you expect to rise in value | Settlement at inheritance | What is added back at death is the value at the time of the gift. The rise in value escapes tax (a fall in value works against you) |
The choice is made separately for each person making the gift. The settlement system for gifts from your father and calendar-year taxation for gifts from your mother is a valid combination[NTA No.4103].
The two systems side by side (gifts made from January 2024)
| Item | Calendar-year taxation | Settlement at inheritance |
|---|---|---|
| Who can use it | Anyone | From a parent or grandparent aged 60 or over on 1 January, to a child or grandchild aged 18 or over |
| Basic exclusion of ¥1,100,000 a year | Yes (¥1,100,000 per recipient) | Yes (new from 2024. The ¥1,100,000 is apportioned across the donors) |
| Gift tax on the part above ¥1,100,000 | Progressive rates of 10-55% (rate table) | Zero up to a cumulative ¥25,000,000, then a flat 20% |
| Add-back at death of gifts of ¥1,100,000 or less | The last seven years come back (three years for a death during 2026, seven years from 2031) | Never comes back |
| Add-back at death of gifts above ¥1,100,000 | Nothing more than seven years back | The part above ¥1,100,000 is added to the estate in full, however many years earlier |
| Gift tax already paid | The tax on added-back gifts is credited against the inheritance tax | Credited against the inheritance tax. Any excess is refunded |
| Filing | Not required at ¥1,100,000 or less | An election notification form is required in the first year (1 February to 15 March of the following year). After that, no filing at ¥1,100,000 or less |
| Revoking it | You can switch to the settlement system at any time | Once elected, you cannot go back to calendar-year taxation |
| Small residential land valuation reduction | Available if you acquire the land by inheritance | Not available for land received as a gift |
Sources: NTA No.4103 "Electing settlement at the time of inheritance", No.4402 "When gift tax applies", No.4408 "Calculating gift tax and the rates", No.4161 "Adding back gifted assets and tax credits", No.4124 "The small residential land valuation reduction"
Whether the ¥1,100,000 comes back is the biggest fork in the road
The 2024 reform tightened calendar-year taxation and made the settlement system easier to use. Under calendar-year taxation, the period over which gifts made before death return to the estate was extended from three years to seven. Years in which the gift was ¥1,100,000 or less and no gift tax was due come back too[NTA No.4161]. Under the settlement system, what is added to the estate is the gift for each year minus ¥1,100,000[NTA No.4103]. If every year is ¥1,100,000 or less, the add-back is zero.
- Calendar-year taxation: of the ¥7,700,000 given over seven years, the ¥3,300,000 from the last three years is added in full, and the ¥4,400,000 from years four to seven is added less ¥1,000,000, so ¥3,400,000 → ¥6,700,000 returns to the estate
- Settlement at inheritance: every year is ¥1,100,000 or less, so the add-back is zero. The whole ¥7,700,000 leaves the estate
- For a family facing a 15% inheritance tax rate, the difference is about ¥1,000,000 (¥6,700,000 × 15%)
To see how many years come back in your case, use the seven-year add-back calendar for lifetime gifts.
For a large one-off gift, the rate difference is what matters
Above ¥1,100,000, calendar-year taxation is progressive. Even for a "special gift" from a parent or grandparent to a child or grandchild aged 18 or over, the rate is 55% once the taxable amount after the basic exclusion exceeds ¥45,000,000[NTA No.4408]. Under the settlement system it is zero up to a cumulative ¥25,000,000 and a flat 20% above that.
| Gift in one year | Gift tax under calendar-year taxation (special rates) | Gift tax under the settlement system (first year) |
|---|---|---|
| ¥1,100,000 | ¥0 | ¥0 |
| ¥5,000,000 | ¥485,000 | ¥0 (uses ¥3,900,000 of the ¥25,000,000 allowance) |
| ¥10,000,000 | ¥1,770,000 | ¥0 (uses ¥8,900,000 of the allowance) |
| ¥30,000,000 | ¥10,355,000 | ¥780,000 (¥30,000,000 − ¥1,100,000 − ¥25,000,000 = ¥3,900,000 × 20%) |
Calendar-year taxation is worked out with the NTA rate table for special gift assets (the ¥5,000,000 case matches the NTA's own worked example of ¥485,000). The settlement figures are for the year the system is first elected.
But the settlement system only makes the gift tax cheaper. The part above ¥1,100,000 comes back in full at death and is taxed as part of the estate. The gift tax you avoided is simply replaced by inheritance tax; the tax does not disappear. You come out ahead in two cases: a family whose estate falls within the inheritance tax basic exclusion, and an asset that rises in value after the gift.
Three traps to check before electing the settlement system
- There is no way back. Once you file the election form for a donor, every later gift from that donor uses the settlement system. The ¥1,100,000 calendar-year exclusion for that parent is gone for good. The NTA states plainly that "it cannot be withdrawn afterwards"[NTA No.4409].
- The land reduction disappears. Give the land under the family home away through the settlement system and you lose the small residential land valuation reduction (80% off up to 330 m²) that would have applied at death[NTA No.4124]. On land valued at ¥50,000,000, that is a ¥40,000,000 reduction thrown away. To check whether the land qualifies, see how to tell if the small residential land reduction applies.
- A fall in value costs you. What is added back at death is the value at the time of the gift. Shares or property that have since fallen are still taxed at what they were worth when they were high.
The election form is filed between 1 February and 15 March of the year after the gift, with documents such as the recipient's family register attached[NTA No.4304]. Miss the deadline and that year's gift is taxed under calendar-year rules. The ¥25,000,000 special deduction is available only if you file on time.
Frequently asked questions
Can I use the settlement system for my father and calendar-year taxation for my mother?
Yes. The settlement system is elected donor by donor. Electing it for gifts from your father leaves gifts from your mother under calendar-year taxation.
If both parents give me ¥1,100,000 under the settlement system, is my basic exclusion ¥2,200,000?
No. The ¥1,100,000 under the settlement system is per recipient per year, and it is apportioned in proportion to what each donor gave. With ¥6,000,000 from your father and ¥4,000,000 from your mother, it is ¥660,000 against your father's gift and ¥440,000 against your mother's.
Do I have to file every year once I elect the settlement system?
The first year needs the election form and a return. From the second year on, no return is needed if that year's gifts are ¥1,100,000 or less. You file in any year that goes above ¥1,100,000.
Is there any point in electing the settlement system if the family owes no inheritance tax?
Yes. If the estate plus the gifts made under the settlement system still falls within the basic exclusion, you can move up to ¥25,000,000 early with no gift tax and no inheritance tax. Under calendar-year taxation, any year above ¥1,100,000 triggers gift tax.
Reference links (sources)
- NTA No.4103 Electing settlement at the time of inheritance - who qualifies, the ¥1,100,000 basic exclusion, the ¥25,000,000 special deduction, and the fact that it cannot be undone
- NTA No.4408 Calculating gift tax and the rates (calendar-year taxation) - the rate table and worked examples
- NTA No.4410 When you receive gifts from more than one person - how the ¥1,100,000 is apportioned under the settlement system
- NTA No.4409 Calculating gift tax (where settlement at inheritance has been elected) - a three-year worked example
- NTA No.4161 Adding back gifted assets and tax credits (calendar-year taxation) - the seven-year add-back
- NTA No.4304 Documents to attach to the election form for settlement at inheritance
Note: the worked figures are this site's application of the NTA rate table and add-back rules. For an individual decision, check with a tax accountant or your tax office.
