Does Inheritance Tax Wipe Out Wealth in Three Generations?

Conclusion: over three inheritances, tax takes 4% of ¥100 million, 21% of ¥300 million and 48% of ¥1 billion

Our own estimates. Each time, the heirs are a spouse and two children, the estate is divided according to the statutory shares, only the spousal tax reduction is used, and neither the small residential land special provision nor lifetime gifts are used. Tax rates follow NTA Tax Answer No. 4155 and the calculation steps follow No. 4152.

A family with ¥100 million loses only 4% to tax across three inheritances. It still feels as if "the wealth is gone" because it splits into two children, four grandchildren and eight great-grandchildren. Divide ¥100 million among eight people and each gets ¥12 million. Even with zero tax it would be ¥12.5 million. With ¥1 billion, on the other hand, almost half goes to tax. The saying compresses into one phrase a question whose answer depends on the size of the estate.

Assumptions behind the calculation

• The family is always "a spouse and two children." The father dies (1st), then the mother (2nd), then a child (3rd).
• The estate is its inheritance tax valuation and neither grows nor shrinks. Nothing is spent, earned or given away.
• The estate is divided according to the statutory shares: one half to the spouse and one quarter to each child.
• The only reliefs used are the basic exemption (¥30 million + ¥6 million × number of statutory heirs) and the spousal tax reduction (zero tax up to ¥160 million or the spouse's statutory share)[NTA Tax Answer No. 4158].
• The 2nd inheritance covers only what the mother received in the 1st (her own assets are zero).

In reality the tax would be lighter. The land under the family home qualifies for the small residential land special provision (an 80% reduction in value for up to 330 m²), and if inheritances follow within 10 years, the successive inheritance credit lets you deduct part of the previous tax. We deliberately left these out to show a floor: "this is what it costs even without any planning." The three calculation steps are summarized in Inheritance tax rates and the 3-step calculation.

Three inheritances of a ¥100 million family: the only tax is ¥3.95 million the first time

If the mother inherits the house when the father dies, the spousal tax reduction brings the tax to ¥0. The heavy one is the second death, the mother's, and if one of the children lives with her, the small residential land special provision applies. For a home with ¥70 million of land and a ¥30 million building, the land value drops to ¥14 million, the taxable amount to ¥2 million, and the tax to just ¥0.2 million[NTA Tax Answer No. 4124]. Without the provision it is ¥7.7 million. How the tax can differ nearly 40-fold depending on who inherits the house is laid out in Who has to inherit the home for the small residential land special provision to apply.

Three inheritances of ¥1 billion: half goes to tax

At ¥1 billion the picture changes. When the father dies, the ¥952 million left after the basic exemption is divided by statutory shares and taxed at the rates, for a total inheritance tax of ¥356.2 million. The spouse's portion is ¥0 under the reduction, but the two children pay ¥178.1 million. When the mother then dies, the two children pay ¥152.1 million on the ¥500 million she received. The first round alone takes ¥330.2 million, or 33% of the estate.

Each child receives ¥334.9 million. Repeat this for the 2nd and 3rd rounds and the total tax reaches ¥484.77 million. The top rate of 55% applies only to the portion of each statutory-share amount above ¥600 million, but the 40–50% bands are wide, so the average comes to almost half. Recent reports of people inheriting ¥1 billion and struggling to find ¥200 million in cash to pay the tax are consistent with this calculation.

These are the "no planning" figures. When the wealthy use asset-management companies or real estate to lower their tax, it is this half they are trying to shrink. How that works is explained in How the wealthy plan around inheritance tax.

"Gone in three generations" dates from the era of a 75% top rate

When the saying took hold, inheritance tax was heavier than it is today. According to Ministry of Finance materials, the top rate was 75% until 1987, cut to 70% in the 1988 reform, lowered to 50% in 2003, and raised back to 55% in 2015. The basic exemption was "¥50 million + ¥10 million × number of statutory heirs" from 1994 to 2014, but in 2015 it was cut by 40% to "¥30 million + ¥6 million × number of statutory heirs"[Ministry of Finance, materials on inheritance tax reforms (in Japanese)].

The 2015 reform changed which way the saying points. The lower top rate made "gone in three generations" less true for the wealthy than it used to be, while the smaller basic exemption pushed the share of deaths subject to inheritance tax from 4.4% in 2014 to 8.0% in 2015, and to a record 10.4% in 2024. In Tokyo it is 20.0%, and 21.6% in the 23 wards. These are now places where one household in five files a return[NTA, overview of 2024 inheritance tax filing results (in Japanese)]. That is why ordinary households have started to hear a saying meant for the wealthy as a statement about themselves.

Rising land prices are one reason the tax net widened, yet the basic exemption has been frozen for more than 10 years since 2015. In an era when the income tax basic deduction moves with prices, it is fair to point out that only the inheritance tax basic exemption stays put, as a matter of how heavy the burden is. The problem of gaps between valuation and market price changing the tax from person to person is covered, together with how Austria came to abolish its inheritance tax, in Austria abolished its inheritance tax.

What shrinks an ordinary family's wealth is not tax but "dividing" and "selling"

In the ¥100 million example, tax took 4%. Even so, a house rarely survives three inheritances. There are two reasons.

• Division. There is only one house, but the heirs multiply to two, then four. If one heir keeps living there, they must either pay the others compensation or sell and split the proceeds. Even with zero tax, the wealth is halved.
• Cash to pay the tax. In 2024, cash and deposits made up 35% of inherited assets and land 30%. The more of a family's wealth is in land, the less cash it has to pay the tax. The filing and payment deadline is 10 months, and the rule is a lump-sum cash payment. Deferred payment is allowed, but when real estate makes up 75% or more, the interest tax is 3.6% and 5.4% a year, and collateral is required[NTA Tax Answer No. 4211].

So the order of planning is to decide "who takes over the house" and "where the cash to pay the tax will come from" before worrying about tax rates. Four mechanisms are available, all of them NTA programs.

• Spousal tax reduction: can bring the first tax to ¥0. But everything then passes into the second inheritance, so giving some to the children in the first round can lower the combined total. We compare three patterns in The ¥160 million spousal tax reduction.
• Small residential land special provision: values the land under the family home at an 80% reduction. Applies when a child who lived with the deceased, or a child who owns no home, takes it over.
• Successive inheritance credit: if the next inheritance occurs within 10 years, part of the tax paid last time can be deducted from this time's tax[NTA Tax Answer No. 4168]. Families where both parents died in quick succession should always check this.
• Lifetime gifts and death insurance benefits: annual gifts of ¥1.1 million leave the estate once they fall outside the 7-year add-back window. Death insurance benefits are tax-free up to ¥5 million × number of statutory heirs and are paid in cash, so they can fund the tax. The Financial Services Agency has requested a higher tax-free limit in the FY2027 tax reform[Ministry of Finance, FY2027 tax reform requests (Financial Services Agency) (in Japanese)].

Summary

• With a spouse and two children over three inheritances, tax takes 4% of ¥100 million, 21% of ¥300 million and 48% of ¥1 billion. "Gone in three generations" is a saying about the wealthy.
• The saying dates from the era of a 75% top rate. The 40% cut to the basic exemption in 2015 widened the share of deaths subject to the tax from 4.4% to 10.4%, and in Tokyo to one in five.
• What shrinks an ordinary family's wealth is not tax but dividing it among siblings and selling to raise cash to pay the tax.
• Decide first "who takes over the house" and "the cash to pay the tax." Then check, in order, the spousal reduction, the small residential land provision, the successive inheritance credit and the tax-free limit on death insurance benefits.

Sources and references

• NTA Tax Answer No. 4152, Calculating inheritance tax / No. 4155, Inheritance tax rates / No. 4158, Spousal tax reduction (in Japanese)
• NTA Tax Answer No. 4124, Small residential land special provision / No. 4168, Successive inheritance credit / No. 4211, Deferred payment of inheritance tax (in Japanese)
• NTA, "Overview of 2024 inheritance tax filing results" (December 2025, in Japanese): share of deaths subject to the tax 10.4%, taxable value ¥23.3846 trillion, tax ¥3.2446 trillion, breakdown of inherited assets
• Ministry of Finance, materials on inheritance tax reforms / materials on the inheritance tax rate structure (in Japanese)
• Ministry of Finance, FY2027 tax reform requests (Financial Services Agency) (in Japanese): raising the tax-free limit on death insurance benefits, reviewing inheritance tax on listed shares

*The tax amounts in this article are our own estimates based on the assumptions stated in the article. Actual tax depends on asset valuation, how the estate is divided and which special provisions apply. Please consult a tax accountant about filing.