Tax office to crack down on high-rise apartment buyers

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.

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Why Japanese investors are targeting apartments on high floors

Japan’s inheritance tax rate is set to increase from January 1, 2015. Under the current tax rate, approximately 4% of households are subject to inheritance taxes, but the decrease in the standard deduction from 2015 is going to affect a lot more households.

Wise investors are seeking alternative ways to store their fortune, with high-rise apartments in central Tokyo becoming a popular option.

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4-storey homes growing in popularity

Japan 4 5 storey homes

Demand is finally starting to grow for 4-storey wooden-frame homes as future revisions to the inheritance tax laws in Japan leave the older generation searching for better ways to pass their wealth onto their children.

From January 1 2015, the basic deduction on inheritance tax for one heir will be reduced from 60 million Yen to 36 million Yen. This will increase the number of people who will become liable to pay inheritance tax. It is estimated that 1 in 4 people in Tokyo’s 23-ku will have to pay the tax at some point.

However, for multi-family homes where several generations live under one roof, up to 80% of the property’s taxable value can be reduced. Building a multi-family home can therefore provide some offset for future inheritance taxes.

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Revisions to inheritance tax in Japan

There has been recent movement to increase the inheritance taxes and reduce the tax deductions as a way to distribute wealth. Osaka Mayor Toru Hashimoto has even suggested collecting the entire inheritance so that no wealth is passed onto the next generation.

The revision to the inheritance taxes in Japan was scheduled to go in effect from April 2011, but was delayed due to the Tohoku disaster. The current economic climate suggests that taxes will be increased, and the terms of the increases may be decided this year.

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Inheritance tax changes

The Japanese Government’s Select Committee on the Taxation System (seifu-zeiseichosakai) announced a new policy to reduce the fixed inheritance deduction from 50,000,000 JPY+10,000,000 JPY per inheritor to 30,000,000 JPY+6,000,000 JPY per inheritor. The announcement was made at a general assembly meeting on December 13th.

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