About Inheritance | Inheritance Tax Countermeasures: 6 ways

Inheritance Tax Countermeasures

Amendment of the Inheritance Tax Law

Due to the recent change in inheritance tax, several points have been revised and many people are interested in it. The main changes are as follows:

  1. The basic deduction has been decreased. From "50 million yen + 10 million yen x legal number of people" to "30 million yen + 6 million yen x legal number of people".
  2. From a maximum tax rate of 50% to 55%.
  3. The taxation levels changed from 8 levels to 6 levels.
Taxation has become a problem for all taxpayers and inheritance has become a thorny issue for people for people. Dealing with it.

Why is making a real estate investment a valid tax countermeasure?

It is complicated to go into the actual details of tax breaks related to a real estate investment. Therefore, we summarized what is said to be the advantages of real estate into six blocks below. Everyone’s situation may differ, but what is important is to be aware of where you stand and what is applicable to you and which block you can make use of.

Cash will be taxed 100%. So in other words, to what extent can you reduce your cash and how well combine the six blocks so as to be able to reduce the taxable value of you and your parent’s assets while maintaining their real value as much as possible. Accordingly, how much tax one will need to pay can vary greatly.

Block A: Buying Land

A land tax assessment is done at a rate is lower than the market price (usually 70% of the posted price).

  1. When converting cash into land, the asset valuation will drop to about 80% of its value.
  2. When leasing land to a third person, the asset valuation will drop again to about 80% of that.

Block B: Buying a building

A building is assessed at a fixed asset tax rate.

  1. When converting cash into buildings, about 40% of the asset value will drop. (It is said that usually 50-70% of the construction cost is used as the evaluation for fixed asset tax, but in fact it is lower than that in many cases.)
  2. When leasing a building to a third person, the valuation will drop further to about 70% of the asset value. (The ratio of leasehold is 30%.)

Block C: Exception cases

There are three types:

  1. Special provisions for leaving one's assets to one's wife while one is still alive (Even when married over 20 years, the amount that can be deducted for real estate is up to 20 million JPY, and up to 21.1 million JPY when an ordinary gift is added.)
    • Property given within three years of succession is deemed property, but the spouse deduction is excluded from the inherited property.
    • Receiving (being given) a residence is more beneficial than receiving funds for a residence. In addition to the low asset valuation, in the case of a leased property, the heir receives the house rent, which avoids increasing the property and they can save the rent income as funds for paying the inheritance tax.
    • When a residential property is sold, a capital gain deduction of up to 30 million JPY can be made. If a husband and wife are co-owners, the deduction is done based on the share of each holder. Therefore the couple can receive a special deduction of up to 60 million JPY in total.

  2. Special provisions for small sized residential Land
    • Regarding residential land of up to 200 m2 that was used by ancestors for business, or leased to a corporation can be reduced by 50%.
    • Regarding residential land of up to 200 m2 that was used as a residence, can be reduced by 80%.
    • Up to now, even though the heir had been living together with their spouse in the home until they entered a nursing home, they were treated as living separately, but starting from January 2014, such cases, can be treated as an exemption as long as their own house was not leased.

  3. Possibility of large land assessment / In certain cases the evaluation of the land is amended (large land correction) (for example, 57.5% if 500 m²).3 conditions must be met:
    • The land register is apparently larger than a standard lot of land in the region.
    • The land is a site for a detached house or condominium.
    • It bears the burden of land for public facilities and public benefit such as roads and parks when involved in development activities.

Block D: Asset Recombination

A land without profitability is a bad asset. Now is the time to turn the real estate into a profitable asset and manage it.

Block E: Land Utilization

Let’s think about how to increase profits. Building rental houses and lending them to others can make the assessment drop. Borrowing for building cost adds an item that can be subtracted from property. (It is possible to realize a great tax avoidance by deducting the minus portion from the property, since the cost is more than the increased value assessment brought by the construction.)

Block F: Incorporation

To avoid having cash remaining as the rental business profit increases, you can set up a real estate management company. By paying the company part of the rental you can avoid income tax. By paying the family members the director’s remuneration, you can save up the funds needed to pay the tax.

There are various types of inherence. All cases are different from one another. They are very complicated. Please feel free to contact us if you have any questions.