Calculation of spouse credit for inheritance tax

[twhi]

UPDATE: I found this webpage from Shika Law that explains the calculation in English such that I am now able to understand the method in the tax law. The key to this webpage is that they very carefully define the terms they are using which helps avoid the confusion I had when reading the online translation of the other website I was originally using.

I was able to determine that the method in the tax law would result in the following equation (refer to diagram).

A = B - max( ( C - D ), 0), where D is the credit and D = ( E * ( F / J ), where F = min ( ( G, 160M ), where G = (spouse's actual share in %) * ( J )

This equation is complicated, but only to the same extent that the method in the tax law is complicated. I'm sure the regulators have their reasons for doing it this way, but the equation can be simplified to an equivalent but more understandable method below.

Spouse's credit = (share in %) * ( Combined tax due prior to credits ), where the "share in %" is the spouse's actual share but with a minimum and a cap. The minimum is the share in % if the spouse's actual share was 160M. The cap is the spouse's statutory share in %.

In hindsight, this is what the statement in the MOF diagram is saying about the credit, just not clearly (in my opinion anyway). Also, this is what was confirmed to me in the comments.

ORIGINAL POST:

TLDR: I'm looking for some "expert" help to understand the text of the inheritance tax law for calculating the spouse's tax credit.

I've been trying to understand the calculation of spouse tax credit for inheritance tax. I've looked at a few websites with examples, and although they use similar methods, they are not completely consistent.

So this inspired me to read the text of the inheritance tax law, or at least the DeepL translation of it. The wording is pretty complicated, so I tried distilling it into some equations and marking up this MOF diagram (see below) accordingly.

I'm sure there are mistakes, due to misreading and/or bad translation. If you think you know what's wrong, please explain in a comment.

A = B - max( ( C - D ), 0 ), where D = E x ( F / E ), and where F = max( E, B )

DeepL Translation with my edits:

Article 19-2 Where the spouse of a decedent has acquired property by inheritance or bequest from the decedent, the amount of inheritance tax payable by the spouse [A] shall be the amount of inheritance tax payable by the spouse , if any, remaining after deducting the amount listed in item (ii) [D] from the amount listed in item (i) [C]. (2) Where the amount listed in item (i) is less than or equal to the amount listed in item (ii), there shall be no inheritance tax due and payable.

(i) The amount calculated pursuant to the provisions of Articles 15 to 17 and the preceding Article with respect to the said spouse [C]

(ii) The amount [D] calculated by multiplying the total amount of inheritance tax payable in respect of all persons who have acquired property as a result of the said inheritance or bequest [E] by the ratio of the lesser of the following amounts [F] to the total taxable amount of inheritance tax in respect of all persons who have acquired property as a result of the said inheritance or bequest [E]

(a) The amount calculated by multiplying the total taxable amount of inheritance tax in respect of all persons who acquired property by inheritance or bequest by the spouse's share of inheritance under Article 900 (Statutory Share of Inheritance) of the Civil Code (in the case of waiver of inheritance, the share of inheritance as if such waiver had not occurred) (in the case of the heir of the decedent in question (or the heir of the decedent in question (if there has been a waiver of inheritance, the share of inheritance as if there had been no waiver)) [E]

(b) The amount equivalent to the taxable amount of inheritance tax in respect of the spouse who acquired the property by such inheritance or bequest.

https://preview.redd.it/jzvcd0qwroj...bp&s=53163d203c772e0cac193b0d4af0f7c41355a501

For reference, here is the Japanese text of the inheritance tax law.

第十九条の二　被相続人の配偶者が当該被相続人からの相続又は遺贈により財産を取得した場合には、当該配偶者については、第一号に掲げる金額から第二号に掲げる金額を控除した残額があるときは、当該残額をもつてその納付すべき相続税額とし、第一号に掲げる金額が第二号に掲げる金額以下であるときは、その納付すべき相続税額は、ないものとする。

一　当該配偶者につき第十五条から第十七条まで及び前条の規定により算出した金額

二　当該相続又は遺贈により財産を取得した全ての者に係る相続税の総額に、次に掲げる金額のうちいずれか少ない金額が当該相続又は遺贈により財産を取得した全ての者に係る相続税の課税価格の合計額のうちに占める割合を乗じて算出した金額

イ　当該相続又は遺贈により財産を取得した全ての者に係る相続税の課税価格の合計額に民法第九百条（法定相続分）の規定による当該配偶者の相続分（相続の放棄があつた場合には、その放棄がなかつたものとした場合における相続分）を乗じて算出した金額（当該被相続人の相続人（相続の放棄があつた場合には、その放棄がなかつたものとした場合における相続人）が当該配偶者のみである場合には、当該合計額）に相当する金額（当該金額が一億六千万円に満たない場合には、一億六千万円）

ロ　当該相続又は遺贈により財産を取得した配偶者に係る相続税の課税価格に相当する金額

 

[kristhuy]

@twhi I think you're making it more complicated than it needs to be.

The first paragraph of 19-2 simply says, in short: the inheritance tax payable by the spouse is zero if the amount in 二 is greater than the amount in 一; otherwise it is the difference between the amount in 二 and the amount in 一.

The amount in 一 is the spouse's liability in the absence of the tax credit (B in your nomenclature).

To calculate the amount in 二, first calculate the value of the spouse's statutory share of the estate. If that value is less than 160 million yen, round it up to 160 million yen. If the resulting value is less than the amount the spouse actually inherited, round it down to the amount the spouse actually inherited. Now take that value and divide it by the value of the total estate, before multiplying the result by the total inheritance tax due on the estate.

In other words, the amount in 二 will be either:

• the value of the spouse's statutory share of the estate divided by the value of the total estate multiplied by the total inheritance tax due on the estate;
• 160 million yen divided by the value of the total estate multiplied by the total inheritance tax due on the estate; or
• the spouse's actual inheritance divided by the value of the total estate multiplied by the total inheritance tax due on the estate.

 

[twhi]

@kristhuy

I think you're making it more complicated than it needs to be.

I guess, but only because the text of the inheritance tax law is complicated.

The first paragraph of 19-2 simply says, in short: the inheritance tax payable by the spouse is zero if the amount in 二 is greater than the amount in 一; otherwise it is the difference between the amount in 二 and the amount in 一.

Good. Looks like i got that part right.

The amount in 一 is the spouse's liability in the absence of the tax credit (B in your nomenclature).

My first mistake. So my second equation should have been:

A = B - max( ( B - D ), 0 )

To calculate the amount in 二, first calculate the value of the spouse's statutory share of the estate. If that value is less than 160 million yen, round it up to 160 million yen. If the resulting value is less than the amount the spouse actually inherited, round it down to the amount the spouse actually inherited. Now take that value and divide it by the value of the total estate, before multiplying the result by the total inheritance tax due on the estate.

In other words, the amount in 二 will be either:

the value of the spouse's statutory share of the estate divided by the value of the total estate multiplied by the total inheritance tax due on the estate;160 million yen divided by the value of the total estate multiplied by the total inheritance tax due on the estate; orthe spouse's actual inheritance divided by the value of the total estate multiplied by the total inheritance tax due on the estate.

Not sure why this is easier than the equation, but I'll go with it.

So the "value of the spouse's statutory share of the estate" would be "H" in my diagram, right?

And is the "total value of the estate" after removing liabilities and taking basic deduction, i.e., "K" in my diagram? Or is it after removing liabilities but before taking the basic deduction, so "J" in my diagram?

I expect the correct answer is "K". If it is, when the spouse's actual share is the same as the spouse's statutory share, the "value of the spouse's statutory share of the estate divided by the value of the total estate multiplied by the total inheritance tax due on the estate" is equal to the spouse's statutory share.

To my surprise, this Chester Tax webpage uses "J" in the examples 2-1, 2-2 and 2-3. Maybe it's right, but it certainly is strange.

(I also found another website that did something different than Chester Tax, but I'm having trouble finding it again.)

 

[kristhuy]

@twhi

the "value of the spouse's statutory share of the estate" would be "H" in my diagram, right?

I think so. I assume that "H" is the spouse's statutory share and "C" is the inheritance tax payable on that share?

FWIW, maybe this is a criticism of the MoF's diagram rather than your marking up, but I think it's generally better to make a clear distinction between the statutory division of assets and the actual inheritance. So if you're going to translate the statutory provisions into equation form, I would recommend having separate letters/symbols for the spouse's statutory share and the spouse's actual inheritance.

is the "total value of the estate" after removing liabilities and taking basic deduction, i.e., "K" in my diagram? Or is it after removing liabilities but before taking the basic deduction, so "J" in my diagram?

J.

The key statutory term here is 相続税の課税価格 (taxable value of the estate), which is used quite a bit in Article 19-2 and is an important concept throughout the Inheritance Tax Law. It is defined in Article 11-2, but the definition is subject to the deductions in Articles 12 (non-taxable assets) and 13 (debts, etc.).

As described in Article 15, the basic deduction (30 million yen plus 6 million yen per statutory heir, etc.) does not affect the value of 相続税の課税価格. Rather it is subtracted from the 相続税の課税価格 prior to calculating the heirs' inheritance tax liability.

So when Article 19-2 talks about the spouse's statutory share (or 160 million yen) as a proportion of 相続税の課税価格, it is referring to the taxable value of the estate before applying the basic deduction.

this Chester Tax webpage uses "J" in the examples 2-1, 2-2 and 2-3.

Yep, that's correct.

I also found another website that did something different than Chester Tax, but I'm having trouble finding it again.

I'm always interested in possible alternative interpretations, so please feel free to link the site if you track it down. Personally, though, I find Chester very reliable on inheritance issues, at least as far as the information posted on their website goes, and I have come across one or two issues in the past where Chester's info was right while a different firm had posted something incorrect.

 

[twhi]

@kristhuy I'm now comfortable with the Chester Tax webpage now that I've read your reply above. Thanks for the explanation.

The Chester Tax methodology is what I had been using to develop this Excel plot of effective tax rate that I mentioned to you in another thread. And on that subject... when you get a chance to look at the plot, it may also help to look at this other Excel plot that should make it easier to review the details of the calculation.

As for the other website I mentioned in my previous reply, unfortunately I can't find it again. I must have been using a private browsing window, because it's not in my browser history.

 

[twhi]

By the way, I just found this webpage from Shika Law that does a great job of explaining in English how the tax law calculation works.

 

[padraig2003]

@kristhuy

Personally, though, I find Chester very reliable on inheritance issues, at least as far as the information posted on their website goes

FWIW, I did find this to be inconsistent with discussions we had on this subreddit around inheriting acquisition cost on foreign currency.

相続等により取得した資産を譲渡した場合の当該資産の譲渡所得の計算上、当該資産の取得費等を引き継ぐ対象となる資産は、山林（事業所得の起因となるものを除く。）又は譲渡所得の起因となる資産に限られ、金銭債権である外貨預金は、取得費等の引継ぎの対象となりません。（所法59、60）

It seems to ignore this unless this is only limited to gifts and excludes inheritance. It says 贈与など though and the referenced article 60-1 would group gift and inheritance together for this (from what I can piece together here), granted there seem to exist special cases going by that low-res table.

 

[nicoleb07]

@twhi You didn't post any questions

 

[twhi]

@nicoleb07 If you’re fluent in Japanese legal language and don’t mind reviewing my work, I would appreciate it.