TOKYO -- Japan is considering increasing property and inheritance taxes on high-rise condominiums to close a tax loophole exploited by affluent owners who buy such units for tax-saving purposes.
"We are considering a taxation method on fixed assets that reflects market prices and will discuss the matter for inclusion in future taxation reform," Chief Cabinet Secretary Yoshihide Suga told reporters Monday.
The plan is to include the changes in the ruling party tax reform outlines to be compiled in December. The new rates would apply to new condo buildings with 20 or more floors to be sold in 2018 and later.
In high-rise condominium buildings in metropolitan areas, units on higher levels are pricier than those of the same size on lower levels, because of more attractive views. The price per floor space on the top level of a new high-rise condo is 46% larger on average than that on the lowest level, according to the Research Center for Property Assessment System.
But under the current rule, the units are valued equally for taxation purposes, by splitting the value of a building with the number of units. So higher-level apartments are taxed lightly relative to their actual prices. For this reason, buying high-rise condo units saves inheritance tax compared with inheriting cash. This tax loophole, exploitable only by the affluent, has drawn criticism.
Under a new appraisal system being considered by the internal affairs ministry, the valuation of mid-level apartments would stay about the same, with that of higher-level units gradually increasing and that of lower-level units falling. A property valued at 50 million yen ($479,550) is levied 700,000 yen in annual property tax. If that appraisal value goes up to 55 million yen, the tax bill would go up to 770,000 yen.
The change will not affect existing properties in order to avoid backlash from residents who purchased high-rise accommodations based on the current taxation system.