💰 "Buy a ¥1 billion apartment just before you die"—this was the inheritance tax strategy spreading among Japan's wealthy. When a 94-year-old borrowed ¥1 billion to purchase real estate and filed inheritance tax as "zero yen," Japan's Supreme Court ruled it violated "tax burden fairness." Now, the National Tax Agency is seriously cracking down on an estimated ¥50 billion in tax avoidance.
Does Wealth Really Disappear After Three Generations?
"Wealth disappears after three generations of inheritance"—a phrase that symbolizes the severity of Japan's inheritance tax. Former Prime Minister Kakuei Tanaka's famous estate in Mejiro was largely surrendered as tax payment, later becoming a public park.
But what's the reality? The main reason Japan's wealthy lose their fortunes isn't inheritance tax—it's family disputes. In fact, the wealthy have been using "every trick in the book" to avoid inheritance taxes.
The "Valuation Magic" of Real Estate
Why does real estate enable tax avoidance? The mechanism lies in the gap between valuations.
Under Japan's inheritance tax system, real estate is valued primarily using "road price method" for land and "fixed asset tax valuation" for buildings. These valuations are set lower than actual market prices.
For rental properties, values drop even further due to "tenant rights" and "rental restrictions." Paradoxically, the more tenants you have, the lower your inheritance tax valuation becomes.
The "Last-Minute Purchase at Age 94" Supreme Court Case
The National Tax Agency's November 2025 document "Issues Surrounding Property Valuation" highlights a landmark case that reached the Supreme Court.
Mr. A, who passed away at 94, borrowed approximately ¥1 billion about three years before his death. He used this to purchase a rental apartment building in Suginami Ward and a condominium in Kawasaki City for a combined ¥1.38 billion. At inheritance, these properties were reported at the statutory valuation of approximately ¥330 million.
Furthermore, by deducting the ¥1 billion loan balance as debt, the inheritance tax was filed as "zero yen."
The 2022 Supreme Court ruling condemned this practice as "contrary to fair tax burden" and upheld the tax authority's reassessment.
Massive Tax Savings Cases Emerge
The NTA documents reveal other shocking examples.
One wealthy individual borrowed ¥2.2 billion to purchase a rental building in Chiyoda Ward for ¥2.1 billion. Through inheritance, what should have been ¥1.23 billion in inheritance tax was reduced to ¥440 million—a "savings" of approximately ¥790 million.
In another case, a property purchased for ¥2.1 billion was reported at a statutory valuation of ¥420 million, reducing tax burden by approximately ¥790 million. The gap ratio exceeded four times the market price.
From Tower Mansions to Whole Buildings
The once-famous "tower mansion tax avoidance" scheme faced new valuation rules in 2024, raising valuations from roughly 40% to 60% of market price.
However, the NTA notes that "schemes utilizing rental properties, particularly whole-building rental apartments that fall outside the new regulations, continue to be observed." When tower mansion loopholes closed, the wealthy simply moved to the next "escape route."
Real estate fractional ownership products have also been flagged. These financial products that divide commercial buildings into small investment units have been used for tax avoidance through valuation gaps.
"5-Year Rule" Coming in 2026 Tax Reform
The government is set to address this issue comprehensively in the 2026 tax reform.
The key change targets "investment properties inherited within 5 years of purchase," valuating them at "acquisition price" rather than statutory road price. This effectively ends "last-minute purchase" tax strategies.
While the NTA has applied individual assessments under General Rule 6 of Basic Property Valuation Guidelines for "clearly inappropriate" cases—only 27 cases (13 real estate, 14 stocks) from 2016-2024—clear institutional rules will now apply.
Are Financial Institutions Complicit?
Behind this issue lurk financial institutions. The NTA points out that "successors who purchased rental properties through introductions from real estate companies and financial institutions for borrowing and sales now struggle with loan repayments."
Cases exist where people purchased expensive properties as advised for tax purposes, only to face deteriorating occupancy rates after inheritance, struggling even to pay property taxes.
The responsibility of financial institutions and consultants who sell "tax avoidance schemes" to the wealthy deserves scrutiny.
Wealth Redistribution vs. Economic Vitality
Inheritance tax is a crucial tool for wealth redistribution. If "excessive tax avoidance" through real estate continues, the system's fairness erodes.
However, real estate purchases for inheritance tax planning have driven capital into real estate markets, fueling development and construction. How regulatory tightening will affect real estate markets remains uncertain.
In Japan, scrutiny of wealthy tax avoidance is intense. Criticism that "only the rich benefit" is persistent, and many welcome the regulatory tightening. Yet voices argue "how you use earned money is your freedom" and "legal tax planning is a right."
What discussions exist in your country about wealthy tax strategies? Is using real estate for inheritance tax planning common? Share your thoughts in the comments!
References
Reactions in Japan
Borrowing ¥1 billion at 94 to buy apartments is obviously inheritance planning. Banks knew and lent anyway—they're basically accomplices.
Criticizing legal tax planning is strange. Sure they exploit loopholes, but the rules are flawed—not the wealthy.
Regular people properly pay 10% consumption tax while the rich openly avoid hundreds of millions in taxes. This country's tax system is seriously broken.
My father bought rental property on his accountant's advice, but it's mostly vacant and property taxes are hard to pay. Tax savings turned into huge losses.
The '5-year rule' just means 'plan purchases 5 years ahead and you're fine,' right? New loopholes will be created.
Real estate industry must be crying. Without last-minute inheritance demand, who's buying luxury apartments?
Filing inheritance tax as zero yen... that's going too far. I understand why the tax agency is furious.
Tower mansion blocked, then whole buildings, now fractional ownership. It's a cat-and-mouse game. Without fundamental valuation changes, it's endless.
55% max inheritance tax rate is indeed high, but having a system that allows complete avoidance is itself wrong.
Real estate friend said 'we live off wealthy inheritance planning demand.' This regulation might restructure the industry.
Even Kakuei Tanaka's grandchildren couldn't pay inheritance tax, yet today's wealthy pay zero. Times changed, or maybe know-how accumulated.
The problem is private banks and tax firms commercializing avoidance schemes. If regulating, they should be held responsible too.
Honestly, doesn't concern ordinary people. For those without assets to inherit, this is a distant world.
Supreme Court's 'contrary to fair tax burden' ruling carries serious weight. It's rare for judiciary to be this decisive.
Declaring a ¥2.1 billion property as ¥420 million is basically fraud. Legal maybe, but where's the morality?
It's true inheritance planning drove capital into real estate. Tighter rules might lower prices? Could be a chance for regular folks.
Many wealthy apparently move assets overseas. Domestic regulations just make assets flee.
People who bought on financial institutions' advice are also victims. They believed 'this will save taxes' and this is the result.
The gap between road prices and market prices has been a problem forever. The government that left it ignored shares responsibility.
As a landlord, let me say managing properties bought with loans is really hard. Getting into it just for tax savings is dangerous.
Real estate inheritance planning is common in the US too. But cases as blatant as Japan's are rare. Borrowing ¥1 billion at 94—what's the bank's risk management?
In the UK, the 'IHT planning' industry is huge. The wealthy use trusts and insurance. Japan's real estate scheme is more direct and straightforward.
German inheritance tax has large exemptions for spouses and children, not as high as Japan's. But real estate valuation gaps are a global problem.
In France, 'lifetime gifts' are the main tax-saving method. Gifts made 15+ years prior aren't included in inheritance. Japan's 5-year rule seems short.
Korea also has high inheritance tax (50% max) like Japan. Chaebol inheritance issues always make news. Real estate tax avoidance is similarly problematic.
Australia has no inheritance tax! So hearing about Japan's situation feels strange. Can't imagine borrowing ¥1 billion to avoid taxes.
Italy's inheritance tax is low at 8% max, and real estate is valued at registered price, minimizing gaps. Japan should reconsider its valuation method.
India abolished inheritance tax in 1985. Wealthy taxation is handled through gift tax. Japan's 55% rate is astonishing.
Canada has no inheritance tax either, but assets are taxed as 'deemed disposition' at death. Japan's real estate scheme wouldn't work here.
Mainland China has no inheritance tax. Neither does Hong Kong. So I understand why Japan's wealthy move assets overseas.
Sweden abolished inheritance tax in 2005. Even our high-welfare state functions without it. Should Japan consider this?
Mexico has no inheritance tax, but real estate transfers have other taxes. Japan's system is so complex you need experts to understand it.
New Zealand has no inheritance tax. But recently there's discussion about taxing the wealthy more. Japan's developments are informative.
Brazil's inheritance tax varies by state, max 8%. Japan's 55% is unbelievably high. No wonder people seek tax avoidance.
Ireland has a '7-year rule'—gifts 7+ years before death are tax-free. Japan's 5 years is short, but at least it's progress.
I'm Japanese living in Singapore. No inheritance tax here, so hearing about Japan gives mixed feelings. It's one reason I left.
US federal estate tax exemption is about $12M (~¥1.3B), so most people aren't affected. Japan's exemption seems too small.
Belgian inheritance tax varies by region, up to 30% even for direct heirs. Better than Japan's 55%, but tax planning is still active here.
Living in Dubai. UAE has no income or inheritance tax. More Japanese wealthy are relocating here.
Russia has no inheritance tax, but considering political risk, living in Japan and paying taxes is safer. Taxes are the cost of social stability.