SEISEI INSIGHTS — Succession
When a Family Runs a Company, How Does the Estate Change?
2026-07-23
"Our family runs a company together. If something happens to me, how is the inheritance tax calculated?" Business-owning wealth holders bring us this question often. The answer starts from a single point: a corporation's assets and an individual's assets are not the same thing.
Individual Ownership and Corporate Ownership Produce Different Estates
If you hold ¥300 million in cash personally, that ¥300 million forms your estate as-is. If instead the asset is moved into a corporation held by several family members, what enters the estate is only the decedent's share interest.
And the value of unlisted shares does not, in most cases, equal the market value of the underlying corporate assets. Unlisted shares are valued under the National Tax Agency's prescribed methods — the net-asset-value method, the comparable-industry method, or a combination of the two. Even within the net-asset calculation, real property is generally valued at its inheritance-tax value (e.g., the roadside land value), which typically sits below market price.
The following is a deliberately simplified model, offered only to illustrate the structure.
| Item | Held individually | Held via family corporation |
|---|---|---|
| Market value of real property | ¥300M | ¥300M |
| Value as estate property | Inheritance-tax value (roadside-price basis) | Decedent's ownership share × net asset value |
| Reflection of debt | — | Corporate liabilities deducted |
| Inheritance-tax base | The property's assessed value itself | Share value corresponding to the interest |
Actual valuations vary considerably with company size, industry, dividends, and other factors. This table is a conceptual model for understanding direction, not a computation.
But Three Conditions Must Hold, or the Structure Can Be Denied
This structure holds only where the corporation has genuine substance. Where it does not, the tax authority may deny it.
- Genuine business activity. The corporation must actually conduct business. Acts or calculations found to unduly reduce the inheritance-tax burden may be denied under Article 64 of the Inheritance Tax Act (denial of acts or calculations of family corporations). A parallel rule for corporate tax appears in Article 132 of the Corporation Tax Act.
- Substantive family involvement. Family members must actually perform duties, not merely hold nominal officer titles. Excessive director remuneration lacking substance may be disallowed as a deductible expense under Article 34 of the Corporation Tax Act (non-deductibility of director remuneration).
- A sufficient operating period. Moving assets into a corporation just before succession raises the risk of denial. In addition, Article 19 of the Inheritance Tax Act adds back certain gifts made within seven years before the start of succession (extended in stages from the former three years, from 2024 onward).
Director Remuneration as "Distribution During Life"
The family corporation has a second structural dimension. Where family members actually serve as officers, the company can pay them director remuneration for that work. Such remuneration is employment income, subject to income and resident tax; its top combined rate is on par with inheritance tax, but the employment-income deduction — together with spreading the payments across multiple years and multiple people — can leave the effective burden gentler than a single inheritance charge.
The key is that this is money that is paid out and consumed. Funds distributed during life as legitimate consideration are not part of the estate.
Treat It as a Structural Question
A family corporation is not a device for avoiding inheritance tax. A family runs a business together and distributes its fruits legitimately during life — and, as a result, the shape of what remains at succession changes. Three things to confirm:
- Does the corporation have genuine business substance?
- Are family members actually involved in management, performing duties commensurate with their pay?
- Has this arrangement continued over a sufficient period — not assembled just before succession?
These are all questions about the general structure of the tax system. Specific design, valuation, and filing are handled by licensed partner tax accountants whom we introduce.
This article provides general information on tax systems and does not constitute individual tax consultation. Specific filings and tax computations are handled by licensed partner tax accountants whom we introduce.