When deciding how to dispose of rural land inherited from your parents, it is important to make an early decision in light of the burden of fixed asset tax and ongoing management costs. If left unattended, taxes, maintenance expenses, and liability risks will continue to accumulate, so it is best to choose the most suitable exit strategy, such as selling, listing with a vacant home bank, donating, or leasing the land.
Why should you not leave unwanted rural land unattended?
As long as you own it, even unwanted land continues to generate costs and risks. There are three main disadvantages.
You must continue paying fixed asset tax
Real estate is subject to fixed asset tax even when it is not being used. Even if rural land has a low assessed value, vacant land does not qualify for the residential land special tax treatment, which increases the tax burden. Agricultural land may also lose preferential treatment if it is not continuously farmed.
Management effort and costs continue
If left unmanaged, risks such as overgrown weeds, fallen trees, and illegal dumping increase. It is not uncommon for annual costs to reach tens of thousands to well over one hundred thousand yen when hiring contractors for tree trimming or grass cutting. If the land is located far away, management costs increase further.
Liability risk from collapse or landslides
Cliffside or sloped land may present a risk of collapse. If inadequate land management causes damage to a third party, the owner may be held liable for damages. The same applies to the risk of a vacant house collapsing and causing injury.
6 ways to dispose of unwanted rural land
Your options depend on your objectives and circumstances. Organize the costs and returns from an investment perspective and choose accordingly.
① Renouncing the inheritance
If you file with the family court within 3 months from the date you became aware that the inheritance had begun, you can renounce the entire inheritance. However, you cannot choose to renounce only the rural land. Please note that this also means giving up all positive assets.
② Selling the land (approaching adjacent landowners can be effective)
Rural land is often difficult to sell, but approaching adjacent landowners is the method with the highest likelihood of closing a deal. Combining the parcel with neighboring land can increase its utility, which may create room for negotiation. A brokerage agreement through a real estate company can also be effective.
③ Listing it with a vacant home bank
Vacant home banks operated by local governments are characterized by the fact that they do not operate for profit, involve no listing cost, and often achieve a high matching rate with people seeking to relocate. After registration, sale or lease negotiations proceed in coordination with real estate companies partnered with the municipality.
④ Donating or transferring it to a municipality or corporation
If no buyer can be found, one option is to donate the land to a municipality or transfer it to an individual or corporation. In the case of a transfer, it is important to determine in advance who will bear costs such as gift tax, stamp tax, and registration and license tax.
⑤ The Inherited Land National Treasury System (from 2023)
By using the "Inherited Land National Treasury System," which came into effect in April 2023, it is possible, after a prescribed review, for the government to take over unwanted inherited land. However, the screening standards are strict, and a financial contribution must be paid (in principle, an amount equivalent to 10 years of land management costs).
⑥ Leasing the land to generate income
Leasing the land allows part of the management burden to be shifted to the tenant, while providing stable ground rent income. Because ordinary leasehold rights may be disadvantageous for the landowner, it is important to use a fixed-term leasehold right (such as a fixed-term business leasehold) and clearly define the future return conditions.
Related reading
- Avoiding risk with a second opinion on real estate investment | How to use expert guidance to prevent costly mistakes
- Real estate exit strategies in an age of inflation and rising construction costs | A thorough guide to whether you should sell or hold
- What is real estate purchase-and-resale? An expert guide to the differences from brokerage, including advantages and disadvantages
Frequently Asked Questions (FAQ)
Q1. Am I required to inherit rural land that has been left to me?
A. You may renounce the inheritance within 3 months from the date you became aware that the inheritance had begun. However, because this applies to the entire estate, you should decide carefully if there are positive assets involved.
Q2. I want to sell rural land, but I cannot find a buyer. What should I do?
A. First consider approaching adjacent landowners, then consider listing the property with a vacant home bank. If it still does not sell, you can examine options such as donating it to the municipality or using the Inherited Land National Treasury System.
Q3. What is the Inherited Land National Treasury System?
A. This system came into effect in April 2023 and allows the government to take over unwanted land acquired through inheritance or similar means after review by the Legal Affairs Bureau. Land with buildings on it or land subject to security interests is excluded.
Q4. If rural land is left unattended, how much fixed asset tax will it cost?
A. The annual amount is calculated by applying a 1.4% tax rate to the assessed value. In the case of vacant land that does not qualify for the residential land special tax treatment (1/6 to 1/3), the relative burden becomes higher.
Q5. What is the difference between an ordinary leasehold right and a fixed-term leasehold right?
A. An ordinary leasehold right renews automatically under the law, so there is a risk that the land will not be returned for a very long time. A fixed-term leasehold right, by contrast, is returned with certainty when the contract term ends. If you intend to let go of the land in the future, a fixed-term leasehold right is generally the more appropriate option.
