Why Paying for Your Child's Living and Education Costs Is Not a Gift

"If I want to reduce inheritance tax, shouldn't I move assets to my children early?" Wealth holders in Japan ask us this constantly. Yet moving assets is itself a gift, and gift tax carries the same top rate as inheritance tax — 55% (Inheritance Tax Act, Arts. 16 and 21-7). Before rushing to transfer, there is a structure worth understanding.

Not "Moving," but "Spending"

Article 21-3, Paragraph 1, Item 2 of the Inheritance Tax Act provides that property acquired between persons under a mutual duty of support, for the purpose of covering living or education expenses, is excluded from the gift-tax base to the extent it is ordinarily necessary. In plain terms: a parent directly covering a child's tuition and living costs is not a taxable gift.

This is not a loophole. Support is a parent's obligation to begin with; the law is simply confirming that premise.

The Keys: "Ordinarily Necessary" and "As Needed"

The provision turns on two ideas. The first is "ordinarily necessary" — tuition, the rent of a home the child lives in, monthly living costs, and the like, so long as they fall within what is ordinarily necessary given that person's standard of living. The second is that the money must actually be spent on living or education costs as the need arises. If funds are handed over and left sitting as savings, that remaining balance can be treated as a gift.

The same amount is treated differently depending on where it goes.

The point is not the size of the sum, but whether it is actually consumed as a living or education expense.

Two Lump-Sum Exemptions

Apart from day-to-day living and education costs, the law also provides for moving larger sums at once.

• Lump-sum education funding exemption (Act on Special Measures Concerning Taxation, Art. 70-2-2): funds contributed by a lineal ascendant to a person under 30, through a trust bank or similar institution, are exempt from gift tax up to ¥15 million.
• Lump-sum marriage and child-rearing funding exemption (same Act, Art. 70-2-3): contributions from a lineal ascendant to a person aged 18 to 50 are exempt from gift tax up to ¥10 million.

Both are special measures whose application windows are written into the statute itself. The education funding exemption applies where the trust beneficial interest or funds are acquired "during the period from April 1, 2013 to March 31, 2026" — a window that, as of this writing in July 2026, has already closed. It cannot be used in planning for gifts going forward. The marriage and child-rearing funding exemption runs through March 31, 2027, and that one still requires planning within the applicable period.

It is also worth noting that even inside its window, the education funding exemption carried an income restriction on the recipient. The proviso to the same article disapplies the exemption where the recipient's aggregate income for income tax purposes in the year preceding the year of acquisition exceeds ¥10 million. A cap figure alone never told you whether the measure was available — a useful lens when assessing comparable regimes.

Treat It as a Structural Question

Succession planning does not begin with hastily moving assets. Within the everyday duty of support — an obligation you already owe — there is legitimate room for transfer. Three things to confirm:

• Who pays the child's tuition, rent, and living costs, from which account, and how
• Whether those payments fall within what is "ordinarily necessary" and are spent as they arise
• Whether any larger transfer can be planned within the special-measure deadlines

Reframing everyday living and education spending as part of the structure of your estate is the foundation of succession planning for anyone holding significant assets.

This article provides general information on tax systems and does not constitute individual tax consultation. Specific filings and tax computations are handled by licensed partner tax accountants whom we introduce.