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Suprement court ruling on the disputed apartments case came out

time 2022/04/21


The supreme court ruling came out about the exessive tax saving case on inheritance tax.

The ruling came out on April 19th, 2022 and it was taken as a shock to those in the tax saving communities such as real estate brokerage companies, tax consultants etc.

The price of the condos was approximately 1,387 MM yen when it was purchased in 2009. When the deceased passed away at the age of 94 in 2012, the tax valuation of the property was 330 MM yen (about 25% of purchase price). The scheme was very common in Japan recently where the properties are purchased by taking loans. The trick is that the valuation of properties are usually at a large discount because it’ll be based on Street Price (路線価) while loan is assessed based on its face value. For example, if you buy a property of 200 MM yen at a full loan, the debit side of your balance sheet will be 50 MM yen while the credit side of your balance sheet will be a negative 200 MM yen. Your net asset for the tax valuation will be reduced by 150 MM yen. Naturally, the more you buy properties by taking loans, the more discount you will get and therefore, it will reduce your taxable valuation of the whole estate.

The ruling said the heirs were aware that purchasing of the property would reduce the inheritance tax significantly in "near future". What happened actually is that the heirs sold the properties within 10 months which was before the deadline of the inheritance tax lodging.

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