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.

Shocking the industry! Reiwa 4 condominium tax reduction ruling

The Supreme Court's ruling in April 2022 regarding inheritance tax measures shocked the industry.
In an inheritance case in which an investment condominium was evaluated in accordance with a notification regarding inheritance tax evaluation, the national tax authorities denied the notification and ruled that the government was allowed to independently evaluate the inherited property and calculate the inheritance tax.

When inherited assets are evaluated based on the valuation standards for inherited assets set forth in the notification, the inheritance tax assessment value of an investment condominium tends to be lower than the market price. This ruling states that, as an exception, the notification valuation may be denied in cases where the valuation based on the notification would result in a significant unfair tax burden.
For those who are planning to purchase investment real estate as a measure against inheritance tax, this was probably a disappointing decision.

Towerman tax saving system

Let's take a look at why purchasing a tower man can save you inheritance tax.

Inheritance tax assessment for condominiums

Inheritance tax is calculated by multiplying the assessed value of the inherited assets by a certain inheritance tax rate.

The key to saving inheritance tax when purchasing a condominium is that the inheritance tax is based on the assessed value calculated using the method specified in the notification, rather than the purchase amount being equal to the assessed value of the inheritance tax.
The inheritance tax assessment value for land is calculated based on the inheritance tax road value, and for buildings it is calculated based on the fixed asset tax assessment value. According to this valuation method, the inheritance tax assessment value is generally around 70% to 80% of the market price.

Why Tawaman is advantageous for inheritance tax assessment

Furthermore, in the case of Tower Man, the gap between the market price and the assessed inheritance tax value is larger than that of a general detached house or condominium.
The inheritance tax assessed value of a single condominium unit is the sum of the assessed value of the land and building for the single unit.

The appraised value of land is the value calculated by dividing the appraised value of the land for one condominium building proportionally by floor area.
Tower condominiums with a large number of condominiums in each building have a considerably low land appraisal value per unit.
On the other hand, the building evaluation value is calculated based on the fixed asset tax evaluation value, but it has the characteristic that it is determined solely based on the floor area without considering the number of floors.

On the other hand, the market price is higher on the upper floors even if the floor area is the same, so the higher you go, the greater the discrepancy between the purchase price and the assessed inheritance tax value. In other words, you will save on inheritance tax.

There are also special exceptions for further evaluation for investment condominiums.

Furthermore, if you rent out a tower condominium you have purchased, various special provisions for devaluation will apply, such as devaluation of rental houses, devaluation of land on which rental houses are built, and devaluation of small commercial residential land. The reason for the special exemption is that the value of use is more limited than for general real estate.

As a result, the assessed inheritance tax value may be around 20% of the purchase price.

Trends in the LDP regarding tower man tax savings

There has long been an argument that tower man tax cuts impede the fairness of taxes, but it is not hard to imagine that the 1992 Supreme Court decision influenced the deliberations of the ruling party's tax system investigation committee.

In the Liberal Democratic Tax Commission on November 30, 2022, it was indicated that the evaluation of Tower Man should be considered by a panel of experts in the future, and at the end of the year, the Liberal Democratic Party and Komeito's FY2020 tax reform outline included ``About inheritance tax evaluation'' has been included.

Here, the valuation method for condominiums will be considered to be optimized based on the actual discrepancy with the market price. This is nothing but a sign that excessive tax savings will be subject to strict scrutiny in the future.

Next time: “Points to note when purchasing Towerman”
I would like to introduce you to