The New NISA: How to Use the Tax-Free Allowance

Two allowances, up to ¥3.6 million a year

Since 2024, the NISA has two allowances: the tsumitate (installment) quota of ¥1.2 million a year for regular fixed-amount purchases of designated investment trusts, and the growth investment quota of ¥2.4 million a year for individual stocks and ETFs.

¥18 million for life, tax-free with no time limit

Counted at purchase cost, you can hold up to ¥18 million tax-free for life, of which the growth quota can make up at most ¥12 million; there's no time limit on the exemption. Allowance freed up by selling comes back the following year.

About 20% tax in a regular account

Gains and dividends in a regular account are usually taxed at 20.315% (income tax plus resident tax). Money made inside NISA is tax-free, but losses can't be offset against gains in other accounts; Japanese stock dividend are only tax-free if you choose to receive them in proportion to shares held (check your broker's guidance).

Key takeaways

• The new NISA has two allowances: the tsumitate (installment) quota of ¥1.2 million a year and the growth investment quota of ¥2.4 million a year, up to ¥3.6 million a year in total.
• The lifetime tax-free holding limit is ¥18 million (counted at purchase cost), of which the growth investment quota can use at most ¥12 million; there's no time limit on the tax exemption.
• After you sell, the freed-up allowance only comes back the following year, and it's still subject to the ¥3.6 million yearly cap.
• Stock gains and dividends in a normal account are usually taxed at 20.315%; losses inside a NISA can't be offset against gains in other accounts.

Try it yourself

You can do these exercises in this lesson's interactive simulation:

1. Keep the default (¥1.8 million a year) and press ▶: in which year do you use up the ¥18 million lifetime allowance?
2. Max out both allowances (¥3.6 million a year): how many years until they're full? Can you put more into NISA after that?
3. Sell in “year 6” at 50%: how much allowance comes back in year 7? What's the most you can invest that year?
4. Set the annual return to 0%: what happens to the tax saved? Why?

Quiz and explanations

1. How much can you put into the new NISA each year at most?

Answer: ¥3.6 million.Tsumitate quota ¥1.2 million + growth investment quota ¥2.4 million = ¥3.6 million a year.

2. Your lifetime limit is full, and you sell holdings that cost ¥3 million to buy. When can you invest again?

Answer: After the allowance comes back the following year, still subject to the ¥3.6 million yearly cap.The allowance freed by selling is counted at purchase cost and comes back the following year, still subject to the yearly cap.

3. You make ¥100,000 selling stock in a normal (taxable) account. Roughly how much tax do you pay?

Answer: About ¥20,000.Stock gains are taxed at about 20.315%: 100,000 × 20.315% ≈ ¥20,000; inside a NISA it would be tax-free.

Terms in this lesson

• dividend (Dividend): Part of a company's profit paid out to shareholders according to how many shares they hold.
• growth investment quota (Growth Investment Quota): The part of the new NISA that can buy individual stocks, ETFs and more, ¥2.4 million a year, using at most ¥12 million of the lifetime limit.
• NISA: Japan's tax-free personal investment account (the new system from 2024): up to ¥3.6 million can go in each year, with a lifetime tax-free holding limit of ¥18 million, and gains and dividends inside are tax-free.
• tsumitate (installment) quota (Tsumitate (Installment) Quota): The part of the new NISA for regular fixed-amount purchases of designated investment trusts, ¥1.2 million a year.