This is a repost (with some changes) of an earlier question. I had originally tried to use a hypothetical of ¥8 million yen to keep the math simple, but most people just replied “that’s below the deduction”, which is not the answer I was seeking because I wasn’t asking about the deduction, I had just chosen a smaller number to keep things simple, but apparently that didn’t get across. So I want to try asking again with a larger number, in the hopes of getting more answers besides comments on what the deduction is.
So let’s say that there’s a hypothetical estate worth ¥800 million yen. If I understand things properly, the inheritance tax calculations (ignoring deductions for the sake of simplicity) more or less go like this:
1. Father dies, 50% goes to mother, 25% to each of the two kids. This means ¥400 million to mother, ¥200 million to each child. Mother is not taxed, children are each taxed progressively at the rate for ¥200 million.
2. Mother dies, 50% goes to each child. That means that sonny gets and is taxed on ¥200 million, princess receives and is taxed on ¥200 million.
In other words, the tax is based upon what the recipient receives and not upon the size of the estate, and if there’s multiple heirs and a wife, the ¥800 million yen estate is ultimately taxed to the two kids at a rate based upon four slices of ¥200 million?
by Chainsawfam
2 comments
> the tax is based upon what the recipient receives and not upon the size of the estate
Kind of. The total tax liability for the estate is calculated by reference to the statutory distribution under the Civil Code. The total tax liability is then assigned to each heir on the basis of the proportion of the estate each heir actually received.
So in step 1 of your example, the total tax liability for the estate is not just the inheritance tax on 200 million yen (63 million yen) plus the inheritance tax on 200 million yen. It is the inheritance tax on 400 million yen (158 million yen) plus the inheritance tax on 200 million yen plus the inheritance tax on 200 million yen. The result gives the total inheritance tax payable by the estate (284 million yen).
This amount is then divided in accordance with the actual distribution (50% to the mother, 25% to each child, in your example). The mother can use the spousal tax credit to reduce her liability from 142 million yen to zero. But the children will each owe 25% of the total inheritance tax payable by the estate (71 million yen).
A feature of this calculation method is that the actual distribution of assets doesn’t affect the total inheritance tax payable by the estate. If the father chose to leave 40% of the estate to the mother and 30% to each child, for example, the total inheritance tax payable by the estate would be the same (284 million yen), because it would still be calculated in accordance with the statutory 50/25/25 distribution. But that figure would be divided in accordance with the actual distribution, so 40% of the total tax would be owed by the mother (which would become zero due to the spousal tax credit) and 30% of the total would be owed by each child.
(All of the above assumes that the taxable value of the estate, for Japanese inheritance tax purposes, is 800 million yen.)
> the ¥800 million yen estate is ultimately taxed to the two kids at a rate based upon four slices of ¥200 million?
No, it’s not that simple, because each child’s tax liability in step 1 of your example is slightly more than the inheritance tax on 200 million yen.
I get: Husband, wife, and two kids all in Japan. Husband dies with assets totaling 8000万円.
|Step|Calculation|Outcome|
|:-|:-|:-|
|1. Determine Total Value of Japan-Visible Estate|8,000万円 from someone in Japan to 3 recipients in Japan a = 8,000万円|8,000万円|
|2. Apply Basic Deduction to Japan-Visible Estate|(8,000円 – 3,000万円 – 3⨉600万円)|3,200万円 taxable estate|
|3. Calculate total tax owed on statutory distribution of estate|(1,600万円 * 15% – 50万円) + (800万円 * 10%) + (800万円 * 10%) = 350万円 |350万円|
|4. Distribute based on received part|wife: (0.5 * 350万円) = 175万円, kid 1: (0.25 * 350万円)= 87.5万円, kid 2: (0.25 * 350万円) 87.5万円|175万円 , 87.5万円, 87.5万円 |
And then the wife’s obligation gets wiped out by the spousal deduction (https://www.nta.go.jp/taxes/shiraberu/taxanswer/sozoku/4158.htm)
wife dies with assets totalling 4000万円 distributes to two kids.
|Step|Calculation|Outcome|
|:-|:-|:-|
|1. Determine Total Value of Japan-Visible Estate|4,000万円 from someone in Japan to 2 recipients in Japan a = 4,000万円|4,000万円|
|2. Apply Basic Deduction to Japan-Visible Estate|(4,000円 – 3,000万円 – 2⨉600万円)|No taxable estate|
|3. Calculate total tax owed based on statutory distrubtion|N/A|N/A|
|4. Distribute based on received part|N/A|N/A|
no tax owed.
So each kid in the end inherits 4000万円 – 87.5万円 of taxes = 3912.5万円. For an effective tax rate of 2.1875%.