It is common practice to purchase investment properties to prepare for inheritance tax.
However, recently, the tax burden on wealthy people seems to have become tighter.
The so-called "Tawaman Tax Savings" may also become subject to regulation in the future.

This time, we will explain the future of inheritance tax measures using tower condominiums.

Points to note when purchasing a high-rise apartment

Considering the recent tightening of measures against inheritance tax, it may seem that people are hesitant to purchase a high-rise apartment as a way to avoid inheritance tax. However, neither the Supreme Court ruling nor the LDP Tax Commission are denying the inheritance tax assessment based on the notification, but they are concerned about the loss of fairness in taxation.

Those who have already purchased a high-rise condominium as a way to avoid inheritance tax, or those who are thinking of purchasing one, should pay particular attention to and consider the following points.

Avoid being seen as having the sole purpose of avoiding inheritance tax

The Supreme Court ruling included documents such as the loan request form and minutes from the bank that provided the loan, which clearly stated that the loan was a way to evade inheritance tax. This became strong evidence for the National Tax Agency's claim of tax evasion, and worked against the court.

There is nothing wrong with investing in real estate in itself, but the aim of doing so as an escape route for inheritance tax is raising concerns.

For this reason, it is thought that there will be few problems if the purchase of an apartment for use solely as a home or for business purposes results in a secondary reduction in inheritance tax.

Make rational investments

In order for real estate business or investment to be recognized as the primary purpose, the investment must have economic rationality.
The upper floors of a high-rise condominium would be a great property to use as a home.

However, I have doubts when considering it as a business or investment. Unless the rent is set fairly high, the return is not worth it and the risk of vacancy increases.

Even if you were to sell it, it would not be possible to convert it into cash immediately because the liquidity is not very high. Overall, it would be unreasonable to complain if it was deemed not to be a rational investment.

Don't borrow too much

In the Supreme Court case, the loan amount far exceeded the inheritance tax assessed value of the condominium, offsetting other positive assets such as cash and financial assets, resulting in zero inheritance tax. This point was also considered to be grounds for determining that the purpose was to evade inheritance tax.

The inheritance tax assessment value is calculated by deducting negative inheritance assets such as loans, unpaid taxes, etc. from positive inheritance assets such as cash, real estate, etc. Therefore, the higher the ratio of loans to the property price, the more inheritance tax you can save.

However, if the ratio of borrowings is large, the rationality of the investment may be questionable, as the rental income may not be enough to cover the principal and interest payments, or the borrowings may remain even after the property is sold. As a result, the National Tax Agency may take a stricter stance.

If the apartment you are currently investing in has a high debt-to-equity ratio, it would be safer to reduce your debt by making early repayments, etc.

The trend of continuing to address inheritance tax issues

With regard to inheritance tax and asset taxation, new regulations are created with each announcement of the tax reform outline, and it is undeniable that the range of measures available is narrower than it was a generation ago.

On the other hand, however, due to reforms such as inheritance tax settlement, systems have been improved in a positive direction to make it easier to transfer assets to the next generation, so inheritance tax countermeasures are not completely closed off.

When purchasing an apartment or investment property as a measure against inheritance, it is necessary to consider overall measures from the perspective of asset succession, not just for the purpose of reducing the inheritance tax burden. It is recommended that you consult with an inheritance or real estate expert to come up with a plan.