Notorious inheritance tax: Is it high ? -Brief on Inheritance tax in Japan as of 2017-

It comes to my attention that many foreign nationals who live in Japan
permanently or (semi-permamently) are
concerned about Japan’s inheritance tax.
I will give you some good guidance about it as follows.

1) Do we all have to pay
    the inheritance tax ?

There is growing concern about the inheritance tax in Japan. In 2013,
the Japanese government passed the bill and lowered the deductible amount
for charging the inheritance tax　(hence effectively raised the tax rate).
The new law became effective from 2015.
However one statistics say the currently only
about 8 out 100 taxpayers in Japan are actually imposed the inheritance
tax so majority of usdo not really have to worry about it
unless you are very high net worth investors or entrepreneurs with
the net taxable asset which is well over 100 million yen or so.

2)   How much is the allowance for
      the inheritance tax ?

I am not a tax account but the Japanese inheritance tax system
is not that complicated.
Let’s suppose you have one spouse and two sons.
Only if you leave the assets such as cash, stocks, bonds,
real estates worth more than 48 million yen for your family
(about U$440,000 @110yen).
Your family members must pay the inheritance tax.

3)  What is the rate of
      inheritance tax ?

The following is the latest table of inheritance tax rate in Japan.
Please note the following assets mean the “taxable amount”
not face value of your assets.
Table taxable assets, tax rate and deductible amount
(direct tax deduction) as are as follows: All in yen.

Oops, if you make fortunes of over 600 million yen  ($5.5 million@110)
in Japan and you are kind of captured in Japan.
The Japanese government will impose your family
massive rate of 55% inheritance tax.

4) But in reality, how much
inheritance tax do we have to pay ?

Still scary ? You must have done very well financially in your career.
Here is the example for a family of one spouse (wife) and two sons with
80 million yen($730,000) taxable assets (after deductibles)
Suppose unfortunately you are killed by an air plane clash in US and
have left 80 million yen taxable assets (cash, stocks, real estates etc)
Taxable asset 80 million yen / In the case of the wife, the eldest son,
the second son in the heirs works out as follows:

1. Wife’s inheritance tax amount when dividing by statutory inheritance
80 million yen × 1/2 (statutory inheritance ratio) = 40 million yen
40 million yen × 20% (inheritance tax rate) -2 million yen
(deductible amount) = 6 million yen
2. Inheritance tax amount of eldest son when divided by statutory inheritance
80 million yen × 1/4 (statutory inheritance ratio) = 20 million yen
20 million yen × 15% (inheritance tax rate) – 500,000 yen
(deductible amount) = 2.5 million yen
3. Inheritance tax amount of second son when divided by statutory inheritance
80 million yen × 1/4 (statutory inheritance ratio) = 20 million yen
20 million yen × 15% (inheritance tax rate) – 500,000 yen
(deductible amount) = 2.5 million yen

Total inheritance tax amount for entire family.
6 million yen + 2.5 million yen + 2.5 million yen = 11 million yen
(approx. $100,000)

11 million yen is a lot of money in deed but the government does not take
everything away from your family.

Remarks:
1) For real estate to live (namely your house or flat), the tax office offers
a kind of special break by deducting approx. 30%
from the market value for calculating the taxable amount.
The table is announced by the government every year and
the table accounts on average approx. 70% of the market value.
So even if your house worths 50 million yen in the market,
when it comes to the accounting the taxable amount, your house
will be roughly valued only about 35 million yen.
 (50 million x 70%)
2) As for the real estates for investing, you can deduct your debt
(your financing from the banks)
from the value of the real estates and the same official tax table
(on average approx. 70% of the market value) shall be applied.
Thus let’s say your real estate values 100 million yen
with the financing (your debt) 80 million yen.
The tax office will account negative value for your investing, which
leads no inheritance tax at all.
i.e. 100 million x 70%=70 million (tax accounting value) < 80 million (debt)
3) As illustrated above, if you have the serious incentive to legally compress
the taxable amount of assets/properties, I recommend to purchase the real estate
for investing rather than leaving cash or stocks for your beloved family
as cash and stocks do not enjoy the special treatment like real estate does.
That is the reason why wealthy people are scooping the units of high rises
in Kachidoki, Roppongi and Yokohama etc.
4) There are more deductible items and tax breaks such as cost of funeral,
payments to monks, life insurance relief and retirement money relief,
for more details, please check the relevant government web sites.
There are a few banks who lend the money to foreign nationals investment
who live in Japan and for limited cases even for people living outside Japan.
For more information, please contact me.

Finally I personally oppose the inheritance tax system as it represents only
tiny percentage of the government’s income but it simply fails the people’s
spirit and greed for making money.

Toshihiko Yamamoto

Real estate investing consultant and author.
Toshihiko is currently writing a book about the real estate investing in Japan
for foreign investors.
Founder of Yamamoto Property Advisory in Tokyo.
International property Investment consultant and licensed
real estate broker (Japan).
He serves the foreign companies and individuals to buy and sell
the real estates in Japan as well as own homes.
He holds a Bachelor’s degree in Economics from
Osaka Prefecture University in Japan
and a MBA from Bond University in Australia.