While your real estate can be a great asset at the time of inheritance, it also carries the risk of causing inheritance tax burdens and family troubles if appropriate measures are not taken.Early measures will lead to avoidance of future problems and reduction of tax burdens. In this article, an administrative scrivener qualified as an inheritance diagnostician and building lot and building trader explains the points you need to know, from basic measures in real estate inheritance to specific tax-saving methods and how to use specialists. Start preparing now to protect your valuable assets and pass them on smoothly to the next generation.
The following are some of the ways to prepare for the inheritance of real estate you own. The key is to prepare for the reduction of inheritance taxes and smooth inheritance procedures.
Inheritance Measures for Real Estate
If your home, parking lot, or investment property is inherited as is, you may be liable for unexpected inheritance taxes, or you may not be able to divide the property properly, which often leads to problems among your remaining family members.
First of all, it is very important to grasp the value of your current real estate and take the appropriate measures as soon as possible in order to ensure the amicable transfer of your valuable assets to the next generation.
1. Use of Living Gifts
By gifting a portion of your real estate during your lifetime, you can reduce the total amount of your estate at the time of inheritance, thereby reducing the burden of inheritance tax. In particular, by using the "calendar year gifting" and "inheritance settlement taxation system," it is possible to reduce the inheritance tax burden by taking into account the basic inheritance tax exemption amount to reduce the amount of inherited property even when gift tax is imposed.
2. Application of Special Exception for Small Building Lots, etc. (Site)
If certain conditions are met at the time of inheritance, the "Special Exception for Small Lots, etc." can be used, which significantly reduces the assessed value of real estate for home and business use. This can greatly reduce the inheritance tax burden.
What is the special exception for small residential lots, etc.?
In many cases, the assessed value of a home site or land on which a business is operated (e.g., a store site) becomes so high that the home site or store site has to be sold to pay inheritance taxes at the time of inheritance.
This is a special exception established from the perspective of securing a minimum place to live or conduct business.
Under this special exception, in the event that residential land acquired by inheritance or bequest (gift by will) is used by the decedent (deceased) for residential, business, or loan business (leased such as apartments), a certain percentage of the land area (area) of the residential land can be reduced from the normal inheritance tax assessed value (value for inheritance tax calculation purposes) up to a certain amount. This is a system that allows for a reduction of a certain percentage of the assessed value for inheritance tax purposes.
Eligibility
- The residential land must be owned by the decedent or a relative who shares the same livelihood with the decedent.
- The residential land must be used for residential, business or lending purposes.
- The division of the estate must be completed by the deadline for filing inheritance tax returns.
The residential land (used for the site of a building or structure) to which this special exception applies is the decedent or a relative of the decedent who shared living expenses with the decedent (shared living expenses or lived in the same household).Residential land that was used for residential, business or loan business and meets certain requirements.
However,This special exception is only applicable if the division of the estate has been completed by the deadline for filing inheritance tax returns (within 10 months of learning of the inheritance (death)).If the division of the estate has not been completed by the filing due date, but the division is completed within three years of the filing due date, the taxpayer may file a return stating that this special exception applies to the property.
Percentage of reduction and land area (acreage) to be reduced
The percentage of reduction for the special exception is determined as follows, depending on the type of building lot to which it applies.
| Eligible Building Lots | Reduction ratio | Land area to be reduced (maximum) |
|---|---|---|
| building lot for residential use | 80% | 330m2 |
| building lot for business use | 80% | 400m2 |
| building lot for loan | 50% | 200m2 |
- If the decedent had more than one residential lot, only one lot that was used primarily for residential purposes will be considered as the decedent's residential lot. (The same applies to the residential land of a relative who shares the same livelihood with the decedent.)
- In the case of joint inheritance of a single residential lot, the eligibility requirements are determined for each person who acquired the lot.
- Residential building lots and commercial building lots may be used together up to their respective maximum areas.
- The limit must be adjusted when applying to residential land used for loan business and other residential land.
Since the adjustment of (4) is somewhat complicated, we recommend that you seek professional advice from a tax accountant, tax office, or other specialist.
Precautions to be taken when applying
For residential building lots
- If the decedent's spouse acquires the property, he or she does not need to live in or own the property by the filing deadline. (The application can be applied even if the premises have been sold as of the filing due date.)
- If the property is acquired by a relative living with the decedent, he or she must continue to live in and own the property by the filing deadline.
- If the property is acquired by a relative of the decedent who does not live with the decedent, he or she must continue to own the property by the filing deadline. The application can be applied even if they do not reside in the house.
- Residential land that was not used for the decedent's residence immediately prior to the commencement of inheritance due to occupancy in a nursing home or other such facility is also considered to be used for the decedent's residence if certain requirements are met.
In the case of residential land for business use
- The application is available only if the relative who acquired the decedent's business residential land continues the business and owns the residential land by the filing deadline. In other words, if the family member sold the residential land after the inheritance occurred and before the deadline for filing the inheritance tax return, or if he/she ceased to operate the business, he/she will not be eligible for the application.
- Residential land used for business within 3 years prior to the start of inheritance is excluded from the special exception. In other words, residential land on which a business was started at the last minute before the start of inheritance in order to qualify for this special exception will not be eligible.
In the case of residential land for loan business
- The application is available only if the relative who acquired the decedent's residential land for loan business (in the case of building and renting out apartments, etc.) continues the loan business and owns the residential land by the due date of filing the return. In other words, if the family member sells the residential land after the inheritance occurs and before the deadline for filing the inheritance tax return, or if the family member stops the lending business, the application will not apply.
- Residential land used for a loan business within 3 years prior to the start of inheritance is excluded from the special exception. In other words, residential land on which a loan business was started at the last minute before the start of inheritance in order to qualify for this special exception will not be eligible.
Example of Calculation for Special Exception for Small Residential Lots
Let's take a look at an example calculation when the special exception for small residential lots is applied.
- Site area of the decedent's residential land: 400 m2
- Inheritance tax assessed value: 100 million yen
- Person who inherits this property: Spouse
- Decedent owns no land other than this land.
As it falls under the residential land of this special exception, it will be reduced by 801 TP3T up to 330m2.
100 million yen x 330m2 / 400m2 x 80% = 66 million yen
Therefore, the value of this site to be included in the inheritance taxable value is
100 million yen - 66 million yen = 34 million yen
3. Reduce the assessed value of real estate (buildings)
We introduced a special exception to reduce the assessed value of the site in section 2. What about buildings? The inheritance tax assessed value of real estate (buildings) is generally lower than the actual market value (about 701 TP3T of the market value), but the assessed value can be further reduced by making the property a rental property. Since the building being leased is assessed as a rental house, a lower assessed value than usual is applied.
Valuation of buildings for own use (home, villa, etc.)
Assessed value of building for own use = Property tax assessed value x 1.0
In other words, buildings for one's own use (one lives in or owns for oneself) are assessed at the value of the property tax assessment itself.
Buildings for rent
Buildings for loan (buildings leased to others) have a certain reduction in assessed value in view of their restricted use.
Assessed value of building for rent = assessed value of building for own use x (1 - percentage of leasehold x percentage of rent)
percentage of rented house: 30% (IRS has established this for each region, and it is usually 30%)
Rental RatioIf a portion of the building is rented out, the appraisal value is calculated by multiplying the percentage of the building that is rented out (rental ratio).
Let's look at the difference in assessed value between leaving the home as it is as a home and building a 4-story apartment building and using the 4th floor as a home and renting out the 1st through 3rd floors. (In the case of the building's property tax assessed value of 100 million yen)
If the home is inherited as is, the assessed value of the home is100 million yenThe first two are the following.
If you turn your home into an apartment and rent out 3/4 of it.
100 million yen x (1-30%x75%) = 100 million yen x (1-0.225) = 100 million yen x 0.775 =77.5 million yen
Property tax assessed value is the value that a municipality assesses against a fixed asset, such as land or buildings, for the purpose of levying annual property taxes. This assessed value is the basis for property taxes, and taxes are calculated based on the assessed value. The assessed value for property tax purposes is determined based on the assessment standards of the department in charge of the municipality, taking into account factors such as the land value of the land, the age of the building, and its use.
The assessed value differs from the market value and is usually set lower than the market value (the price at which the property is actually traded). As the tax base for property tax, it is calculated according to certain standards and is generally reviewed every three years.
4. Preparation of tax payment funds
If you inherit real estate, you will need to pay inheritance taxes in cash. If there is not enough cash, it may be difficult to pay the tax and the owner may have to sell the real estate. Furthermore, real estate may not always be readily convertible to cash, making it difficult to pay inheritance taxes.
It is necessary to identify the amount of inheritance tax needed early on and prepare funds to pay the tax, such as using death insurance and securing sufficient savings.
5. expertsUtilization of
Inheritance of real estate has a high asset value, and there are a wide variety of taxation systems and special provisions that need to be considered. It is important to seek the opinions of experts at an early stage and take countermeasures, rather than worrying on your own.
In the followingHere are some experts and institutions you can consult regarding "preparing for estate planning."
- Real Estate Appraisal Site
There are free real estate assessment sites on the Internet that automatically calculate approximate market prices when you enter information such as the location, area, and age of the property. These areWhile quick and easy to use, accuracy is limited.Therefore, it is best used as a reference value. - real estate company
This method is to request an appraisal directly from a real estate company that handles the sale or lease of real estate.More specific assessments can be obtained, taking into account on-site surveys, market trends, and sales performance in the neighborhood.Many companies offer free assessments, but it is important to compare market prices by requesting assessments from multiple companies. However, some people feel bothered by sales calls afterwards when they request an appraisal. - real estate appraiser
Real estate appraisers are impartial.We are experts in calculating the fair value of real estate.We provide detailed appraisals, taking into account legal and market trends, as well as the characteristics of the land. Especially when the value of real estate is important for inheritance or court cases,It is utilized in cases where a formal appraisal is required.It is costly, but it provides a reliable evaluation. - financial planner
We provide advice on asset management and inheritance tax planning with a view to inheritance, taking life planning into consideration. - certified heir locum tenens
He has a general knowledge of inheritance, not only the legal procedures, but alsoGet advice on how to achieve a smooth inheritance.Advise as a coordinator of all aspects of inheritance in cooperation with the various professionals as needed. - licensed tax accountant
Inheritance tax returns and calculations.If you are subject to inheritance taxes, we can discuss appropriate tax-saving measures with you. - Certified Administrative Procedures Legal Specialist (Gyoseishoshi)
We will assist with the preparation of documents and procedures related to inheritance.We can prepare legally valid documents such as wills and provide consultation on inheritance matters. - judicial scrivener
Mainly responsible for the registration of real estate.Assists in the preparation of documents related to the registration process. - lawyer
We provide legal advice, mediation and litigation support in the event of potential problems or disputes among heirs. In particular,This is useful when complex inheritance issues are likely to arise.
summary
How was it?
Real estate cannot be divided among heirs as easily as cash. In the case of a typical inheritance, real estate often makes up the majority of the inherited property. Therefore, when an inheritance occurs, there may be disputes among heirs over how to divide the property, or the heirs may be subject to inheritance taxes that they had not considered, resulting in the loss of valuable property that has been passed down from generation to generation.
Since various tax incentive programs are available for real estate, it is very important to obtain expert advice at an early stage and consider measures for inheritance.
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