Why is Japan's inheritance tax "the highest in the world"? A history-based explanation
"Japan's inheritance tax is the highest in the world" — many people have heard this. Indeed, the top rate of 55% is the highest level among OECD countries. But the real meaning of "the highest in the world" is not just about the rate. In this article, tracing the history of the inheritance tax from its birth during the Russo-Japanese War in the Meiji era to the present, we unravel why Japan's inheritance tax is said to be so heavy. Rather than a walkthrough of the numbers, this is a piece that answers the question "Why, in the first place?"
・The top rate of 55% is the highest among the major countries (OECD). But what produces the real feeling of "the highest in the world" is the combination of a high rate and a low basic deduction
・The inheritance tax was born in 1905 (Meiji 38), triggered by the need to raise funds for the Russo-Japanese War
・After the war there was even an era of a top rate of 90%, and high rates have continued along with the philosophy of "redistribution of wealth"
First, a fact check | Is it really "the highest in the world"?
If we line up only the top rates, Japan is at the top among the major countries.
| Country | Top rate of inheritance / estate tax |
|---|---|
| Japan | 55% |
| South Korea | 50% (with a surcharge on the shares of a largest shareholder, up to 60%) |
| France | 45% (direct line) |
| United States / United Kingdom | 40% |
| Germany | Up to 50% (depending on the relationship) |
| Australia, Canada, Sweden, Singapore, etc. | No inheritance tax (abolished / non-existent) |
That said, there are aspects that make it hard to declare a simple "highest in the world." South Korea has a 20% surcharge when a largest shareholder inherits shares, so the effective burden can exceed Japan's. Conversely, the United States, even at a 40% rate, has a basic deduction on the scale of a billion-plus yen in Japanese-yen terms and it hardly applies to ordinary households. A detailed comparison of each country's systems is explained in Comparing inheritance taxes around the world.
The real reason Japan is called heavy is that a high top rate and a low basic deduction (¥30 million + ¥6 million × the number of statutory heirs) are combined. While many countries have abolished the inheritance tax, Japan keeps a high rate, and moreover the tax reaches even ordinary homeowner households. This point of "it applies even to ordinary households" is what produces the felt sense of "the highest in the world."
Tracing 100 years of inheritance tax history
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Birth: as war funding for the Russo-Japanese War
The inheritance tax was created in Meiji 38 (1905). The trigger was raising the enormous funds for the Russo-Japanese War. Many wartime tax increases were set to be "abolished once the war ends," but the inheritance tax was made as a permanent law separate from those. Although Japan won the war, it obtained no indemnity and financial difficulties continued, so it remained in place and became a tax that continues to this day[National Tax College (in Japanese)]. At first, it distinguished between "house-headship succession" and "estate inheritance," lightening the tax on house-headship succession, in which one inherits the household.
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Postwar reform: the Shoup Recommendations and a top rate of 90%
After the war, the inheritance tax was substantially reviewed in the tax reform carried out under the GHQ (the Shoup Recommendations). Under the philosophy of preventing the concentration of wealth and realizing equality of opportunity, a highly progressive taxation was introduced, and the top rate reached 90% at one point[Shoup Recommendations (in Japanese)]. Together with this, the postwar revision of the Civil Code abolished "house-headship succession," and equal-share inheritance dividing among siblings equally became the principle.
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The long era of 70%
In the revision after the San Francisco Peace Treaty, the top rate was lowered to 70%, and this level continued for a long time thereafter. The inheritance tax kept a high degree of progressivity as a tax carrying "the redistribution of wealth."
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Reduction: from 70% to 50%
In the Heisei 15 (2003) revision, the top rate was lowered to 50% on the grounds that it was "considerably high compared with other countries." Against a backdrop of the economy and globalization, it was a revision in the direction of easing the tax burden.
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A major shift: raised to 55% + a 40% cut to the basic deduction
In Heisei 27 (2015), the trend reversed again. The top rate was raised to 55%, and at the same time the basic deduction was reduced by 40%, from "¥50 million + ¥10 million × the number of statutory heirs" to "¥30 million + ¥6 million × the number of statutory heirs". As a result, the proportion of people who pay inheritance tax roughly doubled (from the mid-4% range to the 8–9% range of the whole), and it changed in character into "a tax that ordinarily applies if you own a home in an urban area."
Why is Japan still high even now?
Tracing the history, three main backgrounds emerge for why Japan's inheritance tax is heavy.
| ① The ideal of redistributing wealth | After the war, the inheritance tax was positioned as a device "to prevent the fixation of wealth across generations and preserve equality of opportunity." This way of thinking is still the foundation of the high degree of progressivity today. |
| ② Aging and fiscal circumstances | As the number and scale of inheritances expand with an aging society, the inheritance tax is a valuable source of revenue. The 2015 reduction of the basic deduction had, along with correcting disparities, the aim of securing tax revenue. |
| ③ A design of high rate × low basic deduction | While many countries have abolished the inheritance tax, Japan keeps a high rate and the deduction is low too. As a result, the fact that the tax reaches even ordinary households strengthens the internationally "heavy" impression. |
* Which level is appropriate is a matter of values and policy debate; this article organizes the making of the system neutrally.
A "countermeasure" perspective that emerges from the history
The biggest factor that makes Japan's inheritance tax feel heavy is the low basic deduction that was reduced in 2015. Turned around, the basics of a countermeasure come down to grasping your assets early and compressing the taxable base through lifetime gifts and various special provisions. The calculation of the basic deduction and concrete tax-saving measures are explained in The inheritance tax basic deduction and tax-saving measures, and lifetime gifting in The gift tax exemption allowance.
Summary
FAQ
Is Japan's inheritance tax really the highest in the world?
The top rate of 55% is the highest level among OECD countries. However, there are aspects that make it hard to simply declare "the highest in the world" — for example, South Korea has a surcharge on the inheritance of shares by a largest shareholder that can make it effectively 60%. The real reason Japan is called heavy lies in the combination of a high rate and a low basic deduction (¥30 million + ¥6 million × the number of statutory heirs), which means the tax reaches even ordinary households.
When and why was the inheritance tax created?
It was created in 1905 (Meiji 38) to raise the enormous funds for the Russo-Japanese War. Whereas many wartime tax increases were set to be "abolished at the war's end," the inheritance tax was made as a permanent law, and partly because no indemnity was obtained and financial difficulties continued after the war, it has remained in place to this day.
Was the inheritance tax higher in the past?
Yes. In the era of the postwar Shoup Recommendations the top rate reached 90% at one point, and 70% continued for a long time thereafter. It was lowered to 50% in 2003, but was raised to 55% in 2015, and because the basic deduction was reduced by 40% at the same time, the number of people subject to it has actually increased.
Are there countries with no inheritance tax?
Yes. There are many countries that have abolished the inheritance tax or never had one, such as Australia, Canada, Sweden, Singapore, and New Zealand. Japan, which maintains the inheritance tax at a high level, is internationally rather in the minority.
Reference links (sources)
This article is based on the following materials (historical facts and systems confirmed with official sources). Always confirm the latest figures for rates and deductions with the National Tax Agency.
- National Tax Agency, National Tax College, Tax History Materials "Financing the Russo-Japanese War and the tax system" (in Japanese)
- National Tax Agency, National Tax College, Tax History Materials Series (inheritance tax) (in Japanese)
- National Tax Agency, Tax Answer No.4155 Rates of the inheritance tax (in Japanese)
- Ministry of Finance, Materials on inheritance and gift taxes (in Japanese)
* This article is general information that neutrally explains the making of the system and is not tax advice. For concrete inheritance tax calculations and countermeasures, please confirm with a tax office or a tax accountant.