Basic structure of inheritance tax calculation method
Here, we would like to explain the basic mechanism of calculating inheritance tax. Please note that this is only a concise example explanation to give an overview of the calculation.
Overview of the basic mechanism for calculating inheritance tax
- Total assets – Debt deduction/funeral expenses – Basic deduction (30 million yen + 6 million yen x number of legal heirs) = Total taxable assets
- Assuming that the total taxable inheritance was acquired as a legal inheritance, the inheritance tax for each amount is calculated by multiplying it by the inheritance tax rate according to the amount, and then totaling it.
- Each heir will bear the total amount of inheritance tax based on the amount of property acquired.
Calculating the total amount of property
Let me briefly explain the calculation of assets, which is the basis for calculating inheritance tax.
- Add up the total assessed value of the total assets on the day of death using the method prescribed in the Inheritance Tax Act.
- Gift property to heirs, etc. up to three years before the date of death will also be added (if the inheritance start date of the decedent is before December 31, 2020, the period subject to addition is the inheritance start date) If the inheritance start date is within 3 years of the previous year, it will be longer depending on the inheritance start date (up to 7 years).
taxmanToday, I would like to give an overview of how inheritance tax is calculated. There are various systems, so please understand that this is the basic example.
staffMost people are not familiar with inheritance tax.
taxmanThat’s right. Inheritance tax was increased in 2015, and some people who own a house in Tokyo are also subject to inheritance tax, so the number of subjects has increased.
staffDoes inheritance tax calculate the total amount of a deceased person’s assets on the day of his or her death?
taxmanThat’s right. In principle, all assets of the decedent on the date of death are calculated in accordance with the method stipulated by the Inheritance Tax Law.
staffIs there anything else to add?
taxmanUnless the system of tax settlement at the time of inheritance is applied, the decedent (the deceased) gifted the property to the heir etc. within 3 years before the date of death. If so, the amount of the gifted property will also be added. If the inheritance start date of the decedent is before December 31, 2026, the period subject to addition will be within 3 years before the start of inheritance. If the inheritance start date is after that date, the time period will be longer depending on the inheritance start date. (Maximum 7 years)
Calculate the total amount of assets on the day of death
Add property gifted within 3 years before the date of death (if inheritance started before December 31, 2026)
Amount deducted
- There are two types of deductions: debt deductions and funeral expenses.
- Debt deductions are limited to confirmed debts such as loans and unpaid accounts.
Debt deduction
staffIf the deceased had borrowed money as of the date of death, can they be deducted from the total amount of inheritance tax calculated?
taxmanThat’s right. Debts owed and unpaid as of the date of death, as well as taxes such as fixed asset tax and income tax, can be deducted.
Funeral expenses
staffCan funeral expenses be deducted?
taxmanYou could also deduct funeral expenses incurred for the deceased. This is because funerals are basically held by anyone, so it is not a debt, but due to policy considerations, it can be deducted.
Debts and unpaid debts as of the date of death can also be deducted.
Funeral expenses can also be deducted.
Other amounts that can be deducted
I will not explain this part this time, but the total amount of property may be reduced due to special provisions.
- Basic deduction: 30 million yen + (6 million yen x number of legal heirs) can be deducted.
staffWhat is the basic deduction for inheritance tax (the amount that is not subject to inheritance tax)?
taxmanBasic deduction is the amount that is not subject to inheritance tax. Calculated as 30 million yen + number of legal heirs x 6 million yen. For example, if the decedent has 4 heirs, the amount is 30 million yen + 4 people x 6 million yen = 54 million yen.
taxmanIn this case, if the total amount of assets is less than 54 million yen, inheritance tax will not be levied.
the calculation flow
Total assets – Debt deduction/funeral expenses – Basic deduction (30 million yen + 6 million yen x number of legal heirs) = Total taxable assets
This formula calculates the amount of property subject to inheritance tax.
Based on the total amount of taxable inheritance obtained in ①, the total amount of inheritance tax is calculated according to the inheritance tax rate. The total amount of inheritance tax is calculated assuming that each heir has acquired the property as a legal inheritance.
Total amount of inheritance tax × Taxable value of each person ÷ Total amount of taxable value = Tax amount of each heir
Example of inheritance tax calculation
From here on out, it gets a bit confusing, so I’ll explain it with a concrete example.
Calculation of total inheritance tax
Let’s consider the calculation in the case where the inherited property is 90 million yen, funeral expenses are 3 million yen, and there are 4 heirs (spouse and 3 children).
Total inherited assets: 90 million yen, funeral expenses: 3 million yen, heirs (spouse, 3 children)
90 million yen – 3 million yen = 87 million yen
Basic deduction amount: 30 million yen + 6 million yen x 4 people = 54 million yen
87 million yen – 54 million yen = 33 million yen
Inheritance tax will be applied to 33 million yen. This is called the total taxable estate.
From here, the calculations get a little confusing.
Inheritance tax will be calculated on this 33 million yen as the legal inheritance stipulated by the Civil Code, 1/2 of the spouse’s property, and 1/6th of each child’s property.
The spouse’s portion is 33 million yen x (1/2) = 16.5 million yen.The tax rate on 16.5 million yen is 15% and the deduction amount is 500,000 yen, so it becomes 1,975,000 yen.
The cost for one child is 33 million yen x (1/6) x 10% = 550,000 yen, and since there are three children, 550,000 yen x 3 children is 1,650,000 yen.
The total amount of 1,975,000 yen and 1,650,000 yen, 3,620,000 yen, 5,000 yen is the total amount of inheritance tax.
The heirs will be responsible for paying the inheritance tax based on the value of the acquired property.
Calculation of inheritance tax amount for each person
In the above example, if spouse receives 50 million yen, child A receives 30 million yen (he pays funeral expenses of 3 million yen, and child B receives 10 million yen), each person’s inheritance tax will be as follows: We calculate as follows.
The amount of inheritance tax to be borne by the spouse is 3,625,000 yen x (50 million yen / 87 million yen) = 2,083,300 yen
The amount of inheritance tax to be borne by Child A is 3,625,000 yen x (27 million yen / 87 million yen) = 1,125,000 yen
The amount of inheritance tax to be borne by Child B is 3,625,000 yen x (10 million yen / 87 million yen) = 416,600 yen.
As for spouses, there are provisions to reduce the amount of inheritance tax for spouses, so in this case, the amount will ultimately be zero.
