Japan national government proposes new inheritance tax method for valuing real estate
Japan’s tax authorities are reviewing how rental real estate and fractional-ownership property products are valued for inheritance and gift tax.
The review follows concerns that existing valuation rules can produce large gaps between a property’s market price and its value for tax purposes.
At a government tax-policy meeting on November 13th, 2025, the National Tax Agency (NTA) presented examples involving rental properties and fractional-ownership products valued at a fraction of their recent purchase prices.
Photo by Scott Graham on Unsplash.
No new valuation method had been finalized as of November 28, 2025. Officials said possible approaches were still under consideration.
Why can tax valuations be much lower?
Japanese inheritance tax generally requires assets to be valued at market value.
For real estate, however, standardized NTA valuation rules are commonly used because determining an exact market value for every property is difficult.
Land in many urban areas is valued using official roadside values, known as rosenka. Rental properties can receive additional reductions because tenant rights restrict an owner’s ability to use the property freely.
That can produce a different result from the investment market.
A well-occupied rental property may command a high market price because buyers value its rental income. For tax purposes, however, having tenants can reduce the calculated value because the owner faces greater usage restrictions.
The result can be a significant gap between market value and inheritance-tax value.
Cases highlighted by the tax authorities
The NTA presented an example involving a rental apartment building in Tokyo’s Chiyoda Ward.
The property was purchased for ¥2.1 billion in August 2019. When the inheritance began in May 2022, it was valued at ¥420 million under the standard tax rules.
The agency also cited a fractional real estate investment purchased for ¥30 million in March 2022.
When it was gifted about five months later, its tax value was calculated at just ¥4.8 million. The interest was later sold back for approximately its original purchase price.
The examples illustrate why authorities are examining situations where a recent market transaction provides evidence of a substantially higher value than the standard tax calculation.
Fractional-ownership products are also under scrutiny
Fractional real estate products allow investors to hold smaller interests in income-producing properties rather than buying an entire building.
The NTA is examining whether existing real estate valuation methods remain appropriate when these interests can be bought and sold as investments at prices far above their calculated tax values.
Officials indicated that the issue is not limited to one particular legal structure.
Japan has already tightened some condominium valuations
The current review follows an earlier change affecting individually owned condominium units.
Since January 1, 2024, new NTA valuation rules have applied to qualifying condominium interests inherited or received as gifts. The rules were introduced to reduce unusually large gaps between conventional tax valuations and market values.
Those measures do not, however, provide a direct solution for entire rental buildings.
Government officials said whole rental properties are more difficult to standardize because individual buildings vary significantly and there are fewer directly comparable transactions.
What could change?
As of November 28, 2025, the government had not settled on a new valuation formula.
Officials discussed possible approaches including greater use of recent transaction prices and methods that take investment income into account.
A recently purchased rental property may provide a useful market reference because its transaction price already reflects factors such as rental income and expected returns.
But the November discussions were part of a policy review, not an enacted reform.
Why this matters
For international owners and investors, the issue is important because Japanese real estate can have a substantial difference between its investment-market price and its inheritance-tax valuation.
That difference has made rental property attractive in some estate-planning strategies.
The government’s review suggests that authorities are questioning whether the existing treatment remains appropriate when a property or investment has recently traded at a much higher price.
Any eventual reform could therefore change the tax-planning assumptions surrounding Japanese rental real estate.
For now, however, existing valuation rules remain in place.
Further Reading:
National Tax Agency - 2025 roadside land values (Japanese only)
National Tax Agency - condominium valuation rules (Japanese only)
