Will real estate investment for inheritance tax increase the taxable amount?Understand how taxes work so you don't fail

The reason why changing inherited assets to real estate is an inheritance tax countermeasure is that there is a difference between the market value and the inheritance tax assessment value.By lowering the inheritance tax assessment value attached to each land and building below the market value, the taxable amount of inheritance tax can be suppressed.

Land is calculated based on the index of inheritance tax land price set by the National Tax Agency, and it is set at about 8% of the market price, so it is 2% cheaper than cash.In addition, if there are special cases such as small-scale residential land or if there is a rental property on the land, it is called a rental house construction land, and the amount will be reduced by about 2% compared to the case where you can do it yourself.As a result, the inheritance tax valuation is calculated to be about 4% lower than the market value, so real estate investment is said to be an inheritance tax measure.

However, the risk is not 0 when investing in real estate as an inheritance tax measure.If you don't have the right knowledge and don't be fooled by the immediate amount of money and don't operate it systematically, it may turn out to be disadvantageous.This time, if you are thinking about real estate investment as an inheritance tax countermeasure, we will raise the points that will be a risk on the contrary.

First, correctly understand the inheritance and gift tax reforms

Due to the revision of the tax system, even those who were not obliged to pay inheritance tax until now may be taxed in the future.Prior to the revision, the basic deduction for inheritance tax was 5,000 million yen + (1,000 million yen x statutory heir), but after the revision on January 27, 1, 1 million yen + (3,000 million yen x statutory heir) heir).

In addition, the tax rate structure of the inheritance tax has changed. The tax rate used to be 1% uniformly for items over 3 million yen to 40 million yen or less. A tax rate of more than 2 million yen was also added, resulting in a tax rate of 2%.In the revision of the gift tax, conditions have been added to allow taxation for liquidation at the time of gift.The age limit for the giver has been expanded from 3 to over 45, and until now the person receiving the gift was the presumed heir over the age of 6, but now grandchildren are also eligible.

Be careful about gifts within 3 years before the start of inheritance

Note that the gift tax and the gift tax under the taxation system for settlement at the time of inheritance are different.Inheritance tax is imposed if the inheritance occurs within 3 years after the gift.Therefore, even if you donate early as an inheritance tax countermeasure, it will be meaningless if the inheritance starts within three years.

In order to prevent unfair reduction of inheritance tax, inheritance tax is levied on gifts made within three years before the commencement of inheritance.For example, if you make a gift in a hurry due to illness, etc., there is a risk that the plan will go wrong and the inheritance will occur within three years.

If you want to reduce inheritance tax, you need to take measures with a long-term perspective and implement them systematically.And if it is judged that the tax effect is high by gifting, it is important to take action as soon as possible.

If the inheritance amount is small, the basic deduction for gift tax will be low and the tax rate will be high, so you will lose money.Conversely, if the amount to be inherited is high, it may be more advantageous to give it in installments rather than using inheritance tax.

However, laws concerning inheritance tax and gift tax are constantly being revised, so first of all, let's get the information properly and find out which one is more profitable.If the merit is high by gifting on top of that, it is necessary to move to execution as soon as possible before the inheritance starts.

Related article:Taxes and Tax Savings When Giving Real Estate While Living

Real Estate Investment and Inheritance Tax

We will introduce what inheritance tax assessment is and what you should be aware of when using real estate investment for inheritance measures.

Inheritance tax assessment for buildings

When inheriting real estate, it is the property tax assessment value that determines the inheritance tax assessment of the building.Since this price is considered to be about 8% of the cost of constructing the property, the amount subject to inheritance tax is less than the construction cost.In addition, rental properties are subject to a tenancy rate, which is approximately 30%.If you calculate these, only the amount that is considerably less than the construction cost of the property will remain, and inheritance tax will be levied only on that amount.This means that your taxable income will be significantly reduced.

Inheritance tax assessment on land

Inheritance tax assessment of land is calculated based on the land price.Road prices are announced once a year, and the price fluctuates every year.The roadside price will be about 1 to 1% of the official land price, which is considered to be the appropriate price of the original land, and the inheritance tax assessment will be suppressed more than the original land value.In addition, the land on which the rental property is built is subject to rental land evaluation, and the leasehold right ratio and the leasehold right ratio are applied.The percentage of land leases varies from region to region, ranging from 5% to 6%.For other rental properties with a land area of ​​less than 3 square meters, special provisions for small residential land are applied, and it is possible to reduce the taxable amount by half.By calculating these, the amount reduced from the original land price will be the inheritance tax assessment.

Real Estate Investment and Gift Tax

If the owner of property makes a gift to his or her children or grandchildren during his/her lifetime, the gift tax is imposed on the amount of the gift.Assets in this case are not limited to cash, but also real estate and marketable securities.

If you receive a gift of real estate, you can divide it into residential real estate where you live and investment real estate that you are using for real estate investment. I will come.Please note that some systems do not apply to investment real estate.

When real estate is donated while alive, the taxable amount is basically calculated based on the inheritance tax assessment value.Inheritance tax assessment is about 8% of the official land price for land and about 5-6% of the construction cost for buildings, so it is possible to reduce the taxable amount compared to the purchase price.In addition, there is a basic exemption for gift tax, up to 110 yen per year.

In addition, there is a special exemption that can reduce the gift tax when gifting assets while alive.This is called the taxation system for settlement at the time of inheritance.

While this reduces the gift tax, when inheritance occurs, the gifted property and the inherited property are combined to pay the inheritance tax.Since this exception applies to both residential property and investment property, it can also be used when gifting real estate investment property.

Under this exception, you can receive a special deduction of up to 2500 million yen for assets, and the portion exceeding that amount will be subject to gift tax of 20%.If there is an inheritance, the amount of the gift tax paid is deducted from the inheritance tax.In order to receive this exception, there are conditions such as the donor being 60 years old or older and the recipient being 20 years old or older.There are other exceptions, such as a gift to a spouse, such as a oshidori gift, but it should be noted that this does not apply to investment properties.

Originally, the monthly rental income obtained from the investment property becomes the property of the owner, and when the owner passes away, inheritance tax is levied as inheritance property.However, if you donate investment property while you are alive, the rental income will be received by the beneficiary, not the donor, so there will be no inheritance tax.If the taxation system for settlement at the time of inheritance is applied, it is possible to use rental income as funds for future inheritance tax.

In addition, the income of the giver will be reduced, and there is an advantage that the amount subject to taxation can be reduced for income tax.In addition, from 25, the range of recipients who can receive gifts under the taxation system for settlement at the time of inheritance has been expanded to include grandchildren aged 20 and over.This has expanded the options for gifting assets such as real estate.

The apartment building itself is an inheritance measure, but be careful of the factors that increase the appraisal value

Basically, it will be a tax saving measure for inheritance tax in apartment construction.This is because the appraisal value of the land will decrease, and depending on how you do it, you will be able to save tax.

The land for building an apartment will be a house rental land, and the valuation will drop by about 2%.For example, if you build an apartment on a land of 6,000 million yen, the calculation will be as follows.

6,000 million yen x (1-60% x 30%) = 4,920 million yen

The land, which had an appraisal value of 6,000 million yen, will be subject to a leasehold right when an apartment is built.The total is 60 million yen to 30 million yen, so the appraisal value has decreased by 6,000 million yen.

The reason for the increase in the inheritance tax evaluation is the large land evaluation

The factor that raises the inheritance tax assessment is the assessment of the vast land.Vast land is land that is expected to be divided into roads and other land when selling large land such as fields and forests.For example, depending on the area, the condition is 500 square meters or more for urbanized areas and 1000 square meters or more for other areas.It is profitable because the evaluation will be reduced because the road will appear, but if the large area is not applicable, the evaluation will increase, so you have to be careful.

For example, let's say you have 1 square meters of land that normally costs 20 yen per square meter.In this case, the appraisal value is 2000 yen x 20 square meters, which is 2000 million yen.However, when it comes to a vast area, the calculation formula is different.

20 yen x 0.5 x 2000 square meters = 2 million yen

As such, the valuation has been cut in half. The part multiplied by 0.5 is the large area correction factor.This number decreases as the square footage of land increases. If it is 5000 square meters, multiply by 0.35, so the rating will be even lower.

Normally, it should be calculated as 20 yen x 5000 square meters = 10 billion yen. Even though the land is supposed to have an appraisal value of 20 billion yen, it can be reduced to 0.35 million yen if it becomes a large area.This difference can be said to be quite large, so it is necessary to be careful when inheriting a vast land.

However, in order to build an apartment, this vast land evaluation cannot be used.While the evaluation of the vast land can be reduced to about 4%, building an apartment will only reduce the evaluation to about 2%, so it will be a loss.Therefore, the inheritance tax assessment will also go up at the same time, and it may not be a tax saving measure for inheritance tax as expected.

Where is the dividing point between gift tax and inheritance tax profit and loss?

If you plan to inherit assets, you need to know in detail which will be higher in gift tax or inheritance tax as a tax saving measure.This is because there are various cases where you can save tax by giving gifts while you are alive, and the payment of inheritance tax is cheaper.Since these gift tax and inheritance tax have been revised, it is important to know the correct information and take countermeasures.

If you can make a gift at a lower tax rate than the inheritance tax rate, you can save inheritance tax.

When comparing the gift tax and the inheritance tax, there is a difference in the basic deduction amount and the tax rate.The point is that the gift tax has a lower basic deduction and a higher tax rate.The inheritance tax rate is lower because it is a system that makes it impossible to avoid taxation by using lifetime gifts.However, even if it is considered disadvantageous, it may lead to tax saving measures by adjusting the timing and recipients.

For example, in the case of inheritance tax, the tax rate will be 1% if the acquisition amount of the statutory heir is between 2 million yen and 40 million yen or less.If you can gift at a lower tax rate, you can save tax. In order to reduce it to 40% or less, the taxable value after subtracting the basic deduction of 110 million yen must be 600 million yen or less.If you donate it over a long period of time, it will result in tax savings from inheritance tax.

The reason why many people buy real estate as a tax saving measure while understanding the risks

1. Significant tax savings compared to holding cash

Did you know that rental apartments were built one after another during the bubble era?This was for tax purposes, and was thought to be more tax effective than holding cash.The reason for this is that you get three benefits.

One is that it is more tax effective to have a rental apartment than to own a vacant lot. Since it is evaluated as a “rental building site,” the inheritance tax evaluation value is reduced by 1%.

The second reason is that the inheritance tax assessment value of the building is 2% less than that of cash.Cash is subject to tax on the amount itself, but for rental apartments, the tax is 6%.Furthermore, since it generates profit as rental income, you can see that it was very popular during the bubble period.

Three are special cases for small-scale residential land.The land will be 3% off, and you can expect a tax saving effect on the land used as a real estate loan.

2. Inheritance tax can be deducted if it becomes a debt

When inheritance tax is levied, if there is a debt, it is said that the amount can be deducted.For example, the cost of building rental housing, the average purchase price of land, etc.If you still have debt at the time of inheritance, you can deduct it from the amount subject to inheritance tax.

In the event of an emergency, inheritance tax can be reduced as much as possible, so it is also convenient for elderly people who do not want to burden their remaining children.If there is an opportunity to let children inherit while receiving rental income as surplus money other than pension income, inheritance tax payment can be reduced and children can leave assets.If there is still a mortgage remaining at that stage, there is a possibility that the payment will be zero with insurance with death protection.

3. Inheritance measures can be taken even in parking lot management

If you have land that has no purpose to use and you do not intend to use it as a rental housing, it is a good idea to manage the land as a parking lot.This approach will also help with inheritance tax.

Compared to rental housing with buildings, the amount of fixed asset tax is high, but on the other hand, there are no construction costs and almost no maintenance costs, so it is a low risk low return.If you want to operate as an inheritance tax countermeasure, be sure to cover it with concrete and treat it as a building. Up to 200㎡, you can save tax by 5%.One thing to keep in mind is that gravel floors are treated the same as vacant lots, and property taxes are high, so avoid them.If you think that you can park 10 cars, you can make a profit even if you deduct the property tax from your income.Expenses are often covered by about half of income, and it is advantageous to be able to earn monthly income with little management.

Inheritance tax example (simulation)

For example, let's compare the case where the land with an inheritance tax assessment of 4000 million yen is left as it is and the case where it is used as a rental housing.In the case of vacant land, all 4000 million yen will be taxed.

On the other hand, what if you build a rental apartment?Assume that the construction cost of 4000 million yen is fully invested, the fixed asset tax assessment is 2400 million yen, the rent ratio is 30%, and the land lease ratio is 60%.

• Appraisal value of the land x (1 - leasehold right x housing right) = 4000 million yen x (1 - 60% x 30%), totaling 3280 million yen.
• Assessed value of the building x (1 - tenancy) = 2400 million yen x (1 - 30%) totaling 1680 million yen for inheritance tax assessed value.

The inheritance tax assessment values ​​for these land and buildings are as follows.

• 3280 million yen + 1680 million yen - 4000 million yen = 960 million yen

Building a rental apartment resulted in a reduction of 3040 million yen.

In addition, a 5% discount will be applied to the appraisal value as a special case for small-scale residential land.Up to a certain area, a system can be applied in which the amount is significantly reduced depending on the application.For example, if you build a rental house on a land of 200 m5, it will be a specified rental land and you will get a XNUMX% discount.The final calculation is as follows:

• 3280 million yen x 50% + 1680 million yen = 3320 million yen - 4000 million yen = - 680 million yen

In other words, the inheritance tax assessed value is -380 yen.

Related article:Tax saving is one of the attractions of real estate investment.Explain income tax, inhabitant tax, inheritance tax, etc. that can save tax!

Plan well and invest in real estate

In this way, real estate investment is a tax-saving measure, but you must also consider risks.If you make a profit from rental management, you will be subject to income tax and resident tax.

One thing to keep in mind is that if you inherit an old, dilapidated apartment, you may need to pay for repairs, such as remodeling, to turn it into a profitable property.Even if the inheritance tax is cheaper, be careful if the remodeling cost is higher.If you want to inherit such real estate, you need to get a quote from the contractor in advance and include the remodeling cost in the operation plan.

Ultimately, it is recommended that you consider the degree of tax savings, yield, vacant house risk and management method before taking the plunge.When purchasing, it is important not only to consider the price, but also to consider the future and choose a property with high profitability.There is a big difference in terms of tax savings if you inherit the property as real estate rather than inheriting it in cash.However, since you have to manage it yourself, you need to consider the know-how and property selection that will make a profit.

In the first place, if possible, you should not get your hands on a property that is not profitable and is likely to have high repair costs, more than tax savings.If you are not sure that the inherited property will be tax-saving, we recommend that you consult an expert.

Summary

Please note the following regarding real estate investment taxes:

• The reason why real estate investment is an inheritance measure is the inheritance tax assessment value
• Understanding Inheritance Tax and Gift Tax
• The apartment building itself is an inheritance measure, but be careful of the factors that increase the appraisal value
• If you can make a gift at a lower tax rate than the inheritance tax rate, you can save inheritance tax.
• If it becomes a loan, inheritance tax can be deducted
• Inheritance measures can be taken even in parking lot management
• We do not deal with properties that are not profitable and that are likely to result in high repair costs.

At Rich Road Co., Ltd., we will consistently support all aspects of investment real estate, from complete beginners to experienced people, from a wide range of real estate selection, loan consultations, post-purchase management, and renovations.

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