Periodic Gift in Japan and Division of a gift
Assume that Taro Yamada (Taro) decides to gift 10,000,000 yen to Jiro Yamada (Jiro). But if Taro gifts Jiro 10,000,000 yen at once in 2023, a gift tax will be imposed.(on the 10,000,000 yen).
Therefore, Taro decides to gift 1,000,000 yen to Jiro each year.
This is because no gift tax is imposed if the amount of the gift in a year is less than 1,100,000 yen.
This 1,100,000 yen is called the basic exemption（基礎控除=Kiso Kojo）.
However, there is a problem with Taro’s approach.
Suppose that Taro contracts to give Jiro a gift of 1,000,000 yen each year for the next 10 years (a gift contract for the year 2023).
In this case, even if the amount to be gifted each year is 1,000,000 yen, Taro is considered to have gifted to Jiro “the right to receive a gift of 1,000,000 yen each year for 10 years” in 2023. This is called a “periodic gift（定期贈与=Teiki zouyo=Teiki Zoyo）.
In this case, there is a possibility that gift tax will be imposed on the 10,000,000 yen in 2023. Solution
If Taro gives Jiro a gift of 1,000,000 yen each year, the following should be considered
Was the ¥1,000,000 gift made each year by chance (and not determined as of 2023)?
Or was it decided to gift a total of ¥10,000,000 as of 2023? (It means it is Periodic Gift)
So when Taro makes the first gift in 2023, he should not decide, “I will make gifts totaling 10,000,000 yen over the next 10 years.”
When making the gift in 2023, Taro should state only that he will gift 1,000,000 yen in 2023.
Also, the amount to be gifted and the timing of the gift should be varied each year:
if a gift of 1,000,000 yen was made in January 2023, a gift of 900,000 yen should be made in March 2024, and so on.
Gifts and Inheritance Tax
Taro decides to make a gift to Jiro while he is still alive in order to reduce his inheritance tax liability. However, any amount gifted within 3 years of Taro’s death (this will change to 7 years from January 1, 2024) will be added to Taro’s estate when Taro dies in the future.
Also, when Taro makes a gift to Jiro, he must produce evidence that he actually made the gift.
Even if Taro creates a bank book in Jiro’s name and transfers 1,000,000 yen to the bank book in Jiro’s name every year, this does not constitute evidence that he made the gift. This is because Taro actually manages the bank account in Jiro’s name. Taro must make the transfer to the bank account that Jiro uses in his daily life.