Posts Tagged ‘gift tax’

Proposed inheritance tax exemption isn’t really about inheritance taxes

Thursday, February 21st, 2013

Indirect beneficiary: High school in Gunma Prefecture

Indirect beneficiary: High school in Gunma Prefecture

The whole point of a consumption tax is that everyone, rich and poor alike, bears it equally according to ability, though in truth the poor bear more since a greater portion of their spending is for necessities. The government understands this even if it isn’t admitting as much. News reports are saying that the ruling coalition of the Liberal Democratic Party and the Komeito have decided to discuss whether or not certain items, such as food, will be subject to either smaller or no increases in the consumption tax by the time it is set to be raised to 10 percent in 2015, though they aren’t guaranteeing any exceptions. In any case, the initial increase to 8 percent that takes effect next year will proceed without any exceptions.

Nevertheless, the LDP thinks it has to throw taxpayers a bone of some sort, which is one of the explanations being given for the inheritance tax exemption that goes into effect in April for three years. It’s generally believed that Japan’s tax on legacies is punishingly high, though in fact only 4 percent of heirs ever pay it. If it seems high it’s probably because people who live in Tokyo, where the media is concentrated, tend to pay the lion’s share of inheritance taxes owing to much higher property values, but even in the capital only 9 percent of heirs ever pay inheritance tax.

However, families of means or those with property are worried since the government has announced that its goal is to raise the national portion of inheritance tax payers to 6 percent. In addition, the income tax burden for the highest tax bracket may be increased from 40 to 45 percent. Older people with money are said to be rushing to public lectures by investment experts to find out how they can pass on more of their assets to their children and grandchildren.

So the government came up with this exemption, which is exclusively used for education. Grandparents can give up to ¥15 million to each grandchild to pay for education-related expenses without the recipient having to pay a gift tax. In order to claim the exemption, the grandparent must deposit the money in an account that has been opened expressly for this purpose in a trust bank. The grandchild or parent/guardian can then withdraw the funds whenever they are needed for educational purposes, but in order to do so they must submit a receipt before withdrawal showing how the money is being used.

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