Small Residential Land Exemption (小規模宅地等の特例) — 80% Reduction
The small residential land exemption (小規模宅地等の特例, shokibo takuchi-tou no tokurei) is one of the most impactful tax relief measures in Japanese inheritance law. It can reduce the taxable value of inherited land by up to 80%, potentially saving heirs tens of millions of yen. This guide covers the rules, eligibility criteria, and how to apply.
Types of Eligible Land
The exemption applies to different categories of land, each with its own reduction rate and area limit:
| Land Type | Max Area | Reduction |
|---|---|---|
| Residential (特定居住用) | 330㎡ | 80% |
| Business (特定事業用) | 400㎡ | 80% |
| Rental Property (貸付事業用) | 200㎡ | 50% |
Eligibility for the 80% Residential Reduction
The full 80% reduction for residential land is available to specific categories of heirs:
Surviving Spouse (配偶者)
Always eligible with no additional conditions. The spouse does not need to have lived in the home or continue living there after inheritance.
Cohabiting Heir (同居親族)
An heir who lived with the decedent at the time of death and continues to live in and own the property until the filing deadline (10 months).
"House-less" Heir (家なき子特例)
If no spouse or cohabiting heir exists, an heir who has not owned residential property for the past 3 years may qualify. This is commonly known as the "ienaki-ko" rule and has strict conditions.
Practical Example
Consider a family home in Tokyo with land valued at ¥80,000,000 (using the rosenka/road-rate valuation) on a 200㎡ plot. If the surviving spouse inherits the property:
Land value: ¥80,000,000
Reduction: 80% of ¥80,000,000 = ¥64,000,000
Taxable land value: ¥16,000,000 (instead of ¥80,000,000)
This ¥64 million reduction could save ¥12-20 million or more in inheritance tax depending on the total estate size and applicable tax rate.
Important Conditions
- The exemption must be claimed on the inheritance tax return; it is not applied automatically.
- The estate division (遺産分割) must be completed before claiming. If division is still pending at the filing deadline, the exemption can be applied retroactively once finalized (within 3 years).
- For rental property land, the rental business must have been operating for at least 3 years before the decedent's death (rule tightened in 2018).
- Land area exceeding the limit is taxed at full value. Only the portion within the limit receives the reduction.
Considerations for Foreign Heirs
Foreign nationals can claim this exemption if they meet the eligibility criteria. However, the cohabiting heir requirement can be difficult for heirs living overseas. In such cases, the "house-less heir" rule may apply if there is no surviving spouse and no cohabiting heir, but the foreign heir must not own residential property anywhere (including overseas) for the past 3 years. Consult a tax advisor (税理士) to evaluate your specific situation.
FAQ
What is the maximum land area eligible for the 80% reduction?
For a residence (特定居住用宅地), the exemption applies to up to 330㎡ of land. For business-use land (特定事業用宅地), the limit is 400㎡. For rental property land, it is 200㎡ with a 50% reduction.
Can a foreign heir claim the small residential land exemption?
Yes, if they meet the eligibility conditions. However, the 'house-owning exclusion' rule means that heirs who own residential property (in Japan or abroad) may be disqualified if they are not the spouse or a cohabitant.
Can the exemption be applied to multiple properties?
Yes, but the total area across all properties cannot exceed the applicable limit. If combining residential (330㎡) and rental (200㎡) properties, a formula adjusts the total allowable area.
Related Guides
This guide provides general information only. It does not constitute tax advice or tax filing services. Please consult a licensed tax professional (税理士) for accurate calculations.