Japan’s National Tax Agency is calling on local tax offices to enforce stricter checks with regards to the purchase of high-rise apartments by wealthy individuals as a way of reducing their inheritance tax burden.
The inheritance tax charged on real estate is calculated based on the taxation value of the property rather than the market value. For apartments in high-rise buildings, the taxation value can be considerably lower than the actual market value because the land ownership share is usually quite small. The value of the apartment itself is also based on the size of the apartment and does not take into account the finish of the interior, whether it is on a high or low floor, nor the building facilities and services.
From January 1, 2015, the inheritance tax deductions were reduced while tax rates were increased. This caused a flurry of buying activity from wealthy Japanese investors who were keen to transfer their cash assets (which are taxed based on face value) into property. Major real estate companies and accounting firms began offering inheritance tax seminars and consultation seminars, which enticed even more buyers to invest in apartments. High-rise apartments have been snapped up by these Japanese buyers, whose demand is considered to be the leading cause of price rises in central Tokyo. As market prices increase, so too do the tax reduction advantages as the gap between market prices and tax values widens.
On average, the market value of an apartment in a high-rise building may be three times the inheritance tax value.
While inheritance tax is usually calculated based on the rosenka value of the property, the ultimate decision is up to the tax office. There have been cases where the taxation agency determined that the family had purchased an apartment as a means to avoid paying inheritance tax and ruled that the property be taxed based on its full market price. Tax offices may start to consider apartments that were purchased shortly before the death of the buyer, or apartments that were purchased and left vacant, as attempts at tax avoidance.
The Asahi Shimbun, November 3, 2015.
The Mainichi Shimbun, November 3, 2015.