JapanSettlement taxation at inheritance?
Settlement taxation at inheritance in Japan refers to the 'settlement taxation system' (a special tax regime) that allows lifetime gifts from parents or grandparents aged 65+ to children or grandchildren aged 20+ to be taxed at inheritance tax rates instead of gift tax — with a ¥25 million non-taxable allowance.
What the Law Says
Japan’s Inheritance Tax Law provides a special 'settlement taxation system' for certain intergenerational gifts, treating them as advance inheritances for tax purposes. This system applies only when strict conditions are met regarding donor/recipient ages and timing.
The settlement taxation system is an optional alternative to regular gift tax. It applies only to gifts made by individuals aged 65 or older to their children or grandchildren aged 20 or older.
Under this system, the first ¥25 million of cumulative gifts received under settlement taxation is exempt from tax. Any amount exceeding that is taxed at a flat rate of 20% — not the progressive gift tax rates.
The recipient must file a settlement taxation election return by March 15 of the year following the gift. Once elected, all future gifts from the same donor must also be reported under this system (unless revoked under strict conditions).
Importantly, amounts taxed under settlement taxation are later credited against the recipient’s actual inheritance tax liability when the donor dies — preventing double taxation.
Statutory TextA person who has attained the age of sixty-five years may elect settlement taxation with respect to gifts made to a child or grandchild who has attained the age of twenty years.
— Inheritance Tax Law, s. 21-2 — Settlement Taxation System
Statutory TextThe amount of taxable value shall be the total amount of the property received minus twenty-five million yen.
— Inheritance Tax Law, s. 21-3 — Calculation of Taxable Value
Statutory TextThe tax rate applicable to the taxable value under the settlement taxation system shall be twenty per cent.
— Inheritance Tax Law, s. 21-4 — Tax Rate
What to Do
Confirm both donor (≥65) and recipient (≥20) meet age requirements.
File the 'Settlement Taxation Election Return' by March 15 of the year following the gift.
Report all subsequent gifts from the same donor under the same system (unless formally revoked before donor’s death).
Retain records — taxed amounts will reduce future inheritance tax upon donor’s death.
Sources
Not legal advice. This article is general information based on publicly available sources, written for educational purposes. Laws change and individual situations vary. Consult a licensed attorney in your jurisdiction before acting on anything you read here. Last reviewed: 2026-06-08.