In what case do I need to submit an inheritance tax return?

Inheritance is something we only encounter a few times in our life.

Many people may not be able to decide whether they should file an inheritance tax return or not.

The amount of inherited property that does not require inheritance tax return(tax exempt limit) is following formula:

30 million yen + 6 million yen x number of legal heirs

For example, if a husband dies and the legal heirs are his wife and children,

30 million yen + 6 million yen x 2 people = 42 million yen

is tax exempt limit.

If you own real estate in Tokyo, there is a strong possibility that your taxation of inheritance tax will exceed the amount of tax exempt limit due to the effects of recent price increases.

However, there are provisions that allow inheritance tax to be reduced by filing a tax return.

In some cases, the inheritance tax paid is 0 yen.

This time, I will introduce the main provisions that can reduce inheritance tax.

Spouse tax reduction

If the spouse of the deceased inherits the legal inheritance portion or property up to 160 million yen, that spouse is exempt from inheritance tax.

In the example above (the only heirs are the spouse and children), the legal inheritance share is 1/2.

This provision has been established with the purpose of ensuring the livelihood of the surviving spouse.

Special provisions for devaluation of small-scale land

In the case of inheriting land that is used by the decedent or a relative with the same livelihood as a business or residence that forms the basis of the surviving heir’s life, the evaluation of the land up to a certain area will be reduced by 80%. Or it can be reduced by 50%.

As a result, inheritance tax can be reduced.

The purpose of this provision is to ensure the livelihood of the surviving heirs.

Special provisions for property evaluation in the event of a specified emergency disaster

If severe damage is caused by heavy rain or an earthquake, and the disaster is designated as a specified emergency disaster, the appraised value of certain inherited assets such as land and stocks can be calculated based on the amount immediately after the disaster.

The applicable requirements are that the inheritance occurs before the disaster and the disaster occurs after the inheritance begins and before the filing deadline of the inheritance tax return.

Inheritance tax is assessed based on the market value of assets at the time of inheritance, but the tax return must be made within 10 months from the start of inheritance.

By the time inheritance tax return is actually filed, the appraised value of the disaster-affected assets has significantly decreased.

If you calculate it based on the assessed value before the disaster, it will be terrible for the heirs.
(Generally, to secure inheritance tax payment funds from inherited assets)

Therefore, by calculating the assessed value immediately after the disaster, the tax-paying ability of the heirs will be taken into consideration.

Conclusion

I have been introducing the provisions that allow you to reduce the amount of inheritance tax by filing a tax return.

In all of cases above, it is necessary to file an inheritance tax return by the filing deadline(within 10 months from the beginning of inheritance), so I recommend to start to preparations for it as soon as possible.

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都築太郎税理士事務所/Tsuzuki Taro Tax Accountant Office

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