Even heirs who did not live with the deceased can receive a significant reduction in inheritance tax if certain conditions are met—this is the "homeless child special exemption" (Ie Naki Ko Tokurei). Filing without knowing this exemption means paying more inheritance tax than necessary. This article explains the content, application conditions, and background of this exemption from a real estate tax perspective.
What Is the Homeless Child Special Exemption?
The homeless child special exemption is a type of the small-scale residential land special exemption (Shokibo Takuchi-to no Tokurei) that allows an heir living separately from the deceased to reduce the assessed value of the deceased's residential land by up to 80%.
Key points:
- Filing an inheritance tax return is required (the exemption applies upon filing)
- The prerequisite is that an heir without their own home inherits the residential land
- If conditions are met, the assessed value can be reduced by up to 80%
Since inheritance tax rates range from 10% to 55%, leveraging this exemption can dramatically reduce the inheritance tax burden.
Six Eligibility Conditions for the Homeless Child Special Exemption
1. The Deceased Had No Spouse
The condition is that the deceased was divorced, unmarried, or that the spouse had already died. If a spouse exists, they can receive the small-scale residential land exemption, and the homeless child exemption therefore does not apply.
2. The Deceased Lived Alone
If a spouse or relative was living with the deceased, that co-resident family member can receive the small-scale residential land exemption, so the homeless child exemption does not apply. However, if the deceased was living with a person who is not an heir, the homeless child exemption does apply.
3. The Heir Has Not Lived in a Home Owned by "Themselves, Their Spouse, a Relative Within Three Degrees, or a Special Related Corporation" for Three Years Before the Inheritance Commenced
Those living in a rental condominium, company housing, an apartment, or a dormitory are eligible, but those living in a house owned by a relative within three degrees—such as a wife living in her husband's home—are not eligible (a requirement tightened by the 2018 amendment).
4. The Heir Has Never Previously Owned a Home
Those who previously owned a home are ineligible. The scheme of creating "homeless children" by gifting or selling property to relatives was closed off by the 2018 tax reform.
5. The Inherited Property Is Held Until the Filing Deadline (10 Months After the Inheritance Commenced)
If the property is sold before the filing deadline, the exemption does not apply. Manipulating the timing of a sale to receive the exemption also runs counter to the intended purpose and is not recommended.
6. The Heir Holds Japanese Nationality
Those who have lived abroad for more than 10 years or foreign nationals temporarily residing in Japan are ineligible.
Why Was the Homeless Child Special Exemption Established?
The purpose of the small-scale residential land special exemption is to protect people from "losing their place of residence through inheritance tax." The homeless child exemption extends this intent and was established to protect heirs who were unable to live with the deceased for unavoidable reasons such as job transfers or company housing. However, since 2018, requirements have been tightened to prevent misuse in tax-saving schemes.
Related Reading
- Complete Guide to Success in Building Management, Including Inheritance Tax Measures
- Asset Strategy in a "World With Interest Rates": Decisions on Holding and Selling Real Estate
- Using Second Opinions to Avoid Risk in Real Estate Investment
Frequently Asked Questions (FAQ)
- Q. Is filing required to receive the homeless child special exemption?
- A. Yes, it is essential. The exemption only applies upon filing. Without filing, you cannot receive the exemption and will pay a large amount of inheritance tax.
- Q. Can I receive the homeless child special exemption if I live in company housing?
- A. If you live in company housing (company-owned), it does not fall under "a home owned by a relative within three degrees," so the exemption can apply if other conditions are met.
- Q. If I want to sell the inherited land in the future, can I still receive the exemption?
- A. Since holding until the filing deadline (10 months after the inheritance commenced) is a condition, selling before the deadline disqualifies you from the exemption. After the deadline, you are free to sell.
- Q. What changed with the 2018 amendment?
- A. Residing in a home owned by a relative within three degrees was added as a new disqualifying condition. This amendment closed off the scheme of gifting one's home to a child to create a "homeless child."
