Will my family have to pay estate taxes? 6 Key Points About Inheritance Tax. 2024 Update

1. what is inheritance tax in the first place?

inheritance taxis a tax imposed on the property of a deceased person (decedent) when he or she inherits such property. Inherited property includes assets such as cash, deposits, real estate, and stocks.

The purpose of the estate tax is to prevent the concentration of wealth and maintain social equity.Inheritance tax is imposed when the total amount of the estate is calculated at the time of the decedent's death and the total amount exceeds the basic exemption amount. The amount of tax to be paid depends on the number of heirs and the nature of the estate.

Inheritance tax is not imposed on each individual heir who receives an inheritance, but is calculated on the entire estate, and the heirs share in the amount of the tax. Also,Because of certain deductions and special exceptions, early action and professional advice are important.

• Wealth Redistribution Functions
  The state collects the wealth concentrated in certain persons throughout a person's life as a tax and returns this to society. Redistribution of wealth" is the primary purpose of the inheritance tax.
  
• Complementary income tax function
  People with a certain level of income in Japan are subject to income tax on their annual income, and they live their daily lives with their disposable income after paying the income tax. On the other hand, not all income is necessarily taxed, as taxation may be deferred due to various tax benefits. Inheritance tax is said to have a "complementary function to income tax" because it has the function of settling taxes again at the time of death on the property formed as a result of the totality of these realities.

2. let's know the transition of inheritance taxable persons

The number of inheritance taxes levied has been on the rise in recent years. In particular,Since the 2015 revision of the Inheritance Tax Law, the number of taxable cases has increased significantly.Under the amendment, the estate taxThe basic deduction was lowered.As a result, many families previously not subject to inheritance tax are now subject to taxation.

Specifically, the number of inheritance taxes levied has been as follows

(Author's work and references:Ministry of Finance Changes in inheritance tax levy)

Before 2014
The basic exemption amount was "50 million yen + (10 million yen x number of legal heirs)," and the inheritance taxable amount was about 41 TP3T of the total.

After the 2015 amendment
The basic exemption was lowered to "30 million yen + (6 million yen x number of legal heirs)" and the taxable amount was expanded. As a result, the number of taxable heirs increased sharply,of the nation's inheritance.Approx. 8%is subject to inheritance tax.

Changes in recent years
Similar levels will continue in 2019 and beyond, with approximatelyAround 8%of inheritances are taxable. The number of taxable cases exceeds about 110,000 per year, compared toMore than twice as many households pay estate taxes.

primary factor
This increase is due to the reduction of the basic inheritance tax exemption amount, as well as soaring land prices (especially in urban areas) and an increase in the number of inheritances due to the aging of the population.The need for estate tax planning is increasing for many families.

3. let's learn about the characteristics of inheritance tax

Inheritance taxes have several characteristics. These characteristics make the inheritance tax burden and measures important.

• progressive taxation system
  Inheritance taxes are higher the larger the amount of the estate.Higher tax rates.The tax rate is based on a progressive taxation system. The larger the total value of the estate, the higher the tax rate will be in steps. If you inherit a large estate, the tax burden will be heavier, so appropriate measures must be taken.
  • Tax rates are tiered from 101 TP3T to a maximum of 551 TP3T and are applied as follows
    • 10 million yen or less: 10%
    • 30 million yen or less: 15%
    • 50 million yen or less: 20%
    • Less than 100 million yen: 30%
    • Less than 300 million yen: 40%
    • Over 300 million yen: 55%
      
• There is a basic deduction.
  Inheritance tax is due when the total value of the estate isbasic or standard deductionThe tax is imposed if the amount of the basic allowance exceeds the amount of the inheritance tax (¥6 million). The basic allowance is calculated by the formula "30 million yen + 6 million yen x number of legal heirs. No inheritance tax is imposed on property less than the basic allowance.
  
• Taxed on the total value of the estate
  Inheritance tax is not on individual heirs, but on the decedent (the person who died).entire heritageThe tax is calculated on the amount of property acquired by each heir. The amount of tax owed is then determined by the amount of property acquired by each heir. Since the tax is levied on the entire estate, the amount of tax due may vary depending on who inherits which property.
  
• Non-heirs may be taxed.
  Generally, heirs (spouse, children, and siblings) are the persons who acquire inherited property, but for example, persons who acquire property through a bequest (a gift made by a person other than an heir to a specific person (heir or non-heir) by will) or a death gift (a living gift agreement resulting from death) are also subject to inheritance tax. Inheritance tax is also applicable to persons who acquired property as a result of a gift at death.
  
• Assets other than cash are taxed.
  Inheritance taxes are,Cash and deposits as well as real estate, stocks, jewelry, cars, etc.assets are also taxed. Real estate, in particular, is often difficult to cash out at the time of inheritance, and in some cases assets are sold to pay the tax.
  
• There are spousal exemptions and special exceptions.
  When a spouse inherits, a large exemption called "spousal tax reduction" applies. For property inherited by a spouse,160 million yenOr, since there is no estate tax on property up to the legal inheritance share, in many cases there is virtually no tax on the spouse.
  Other,(Special Exception for Small Building Lots, etc.)There is a special exception that reduces the assessed value of residential land if certain conditions are met, such as
  
• Taxes are generally paid in one lump sum in cash.
  Inheritance tax is due from the date of inheritance toWithin 10 monthsThe tax must be paid in Since the tax must usually be paid in a lump sum in cash and assets may be sold to make the payment, advance planning is important.

These characteristics make it important to have appropriate estate tax planning in place, especially if you have a large number of assets or own real estate.

4. let's find out how much estate tax people pay.

So how much of an inheritance is subject to inheritance tax?

According to National Tax Agency data for 2021, of the 134,275 persons subject to inheritance and other taxes, 13,496 (10%) had a taxable value of 50 million yen or less, 68,078 (51%) had a value of over 50 million yen and under 100 million yen, and 34,382 (25%).

In other words, 861 TP3T of the total number of people are subject to inheritance tax on estates of 200 million yen or less.

(Author's work and references:National Tax Agency Inheritance tax data by taxable value class)

As noted above, inherited property includes cash, savings, securities, jewelry, automobiles, and real estate.
If you think, "We have almost no assets," and do not take any measures before your death, you may be in a panic when the inheritance actually occurs.

5. let's decide whether or not inheritance tax will be imposed.

Inheritance tax is due on the estate for the total value of the inherited property.This tax is imposed when the amount of the taxable income exceeds the basic exemption amount.
The "basic deduction" is the amount calculated by the following formula.

Basic allowance on the estate = 30 million yen + 6 million yen x legal heirs

Whether or not inheritance taxes are levied depends on the total value of the estate and the number of legal heirs, but generally,It is said that inheritance tax is often applicable when the total value of the estate exceeds about 40 to 50 million yen.

For example, if there are two legal heirs, the basic exemption is 30 million yen + 6 million yen x 2 persons = 42 million yen, so if the total amount of the estate exceeds that amount, it is subject to taxation. If you own land or a house in the city center, the land price is high,Often the case is that the property becomes taxable earlier than expected.