Death Tax and Wealth Tax in Japan

Be afraid, be very afraid

Picture

I was looking for the breakdown of inheritance tax rates in Japan the other day, and stumbled on an interesting news story from 2016.​Basically it’s a rumour that the government was considering a couple of new taxes: a ‘death tax’ and a ‘savings tax’.

​The death tax (死亡消費税) would be a flat tax on all assets at the time of death. It doesn’t seem to be a replacement for inheritance tax but rather a new additional tax, a bit like the consumption tax. It would apply to all residents of Japan and would affect anyone that died, unlike the current inheritance tax that affects very few people.

The savings tax (貯蓄税) would be a tax of 2% per year on savings over 10 million yen. It seems this is not a wealth tax, but rather a tax on cash savings. The discussion in the article linked above mentions that one of the goals would be to encourage people to invest in stocks or property instead of keeping cash.

Now, neither of these would particularly affect me, but when I first saw this, I read the second tax as a wealth tax and had a small freak-out. Much as I like to snigger at wealthy expats complaining about having to pay inheritance taxes after ten years in the country, a 2% wealth tax would be a game changer for me.

It’s funny how we’re all happy for other people to pay more tax, but when it’s our turn everything is different 😉

My wife and I are planning to live off our investments, and expect to receive maybe 2-3% in dividends every year. A 2% wealth tax would reduce this future income to nothing. We’d be faced with the choice of rethinking our lifestyle completely, or moving to a more investor-friendly country.

Now, I think the chance of either of these being implemented is low (and the chance of a wealth tax is almost zero). This country is already a gerontocracy, with both politicians and voters trending older. I can’t see any government taking the risk of proposing something like this.

Still, it’s useful to keep all scenarios in mind when making plans. What would you do if a savings or wealth tax was announced? Would it affect you?
​

Tagged

13 Responses

  2. I would leave Japan in a heartbeat if it saved money. We have a good life here, but both my husband and I are bilingual and pragmatic opportunists, and there is no guarantee where my son will end up as an adult. Our bets at this point are on the U.S. because his expertise in Japanese language and culture would be more of an asset there than his expertise in English language and Western culture would be here. But it is hard to know what the political/economic situation will be in ten years.

  3. Any MMF is technically not cash–short term gov’t bonds, commercial paper, etc. I wonder how a distinction would be made there (vs. a bank account).

  4. If there was a 2% tax on wealth, I would also leave the country, as such a tax would make my goal of FIRE impossible to achieve. Practically, if you use the 4% rule, a 2% tax means one would have to double their savings, which would probably take a decade under nice conditions.
    If it was just a tax on savings, I say go for it. It could maybe finally motivate my friends to get their financial life into order.

  5. Wealth tax is scary. I would consider moving abroad if it is going to happen.
    When JGB defaulted in 1944, they took 10%+ amount of all bank deposits in Japan, which is actually same with the wealth tax. I don’t think non-Japanese individuals were affected, maybe from diplomatic consideration.
    Wealth tax is basically a JGB default, so the assets which constitute from JGB are at risk: JGB itself, bank deposit, bonds issued by banks. MMF could risky too.
    Stock and real estate were not affected in 1944. They have little to do with JGB.
    I guess non-Japanese bonds are safe, like US treasuries or Aussie bonds.
    JGB default will happen, if JGB price drops suddenly and BoJ cannot pay back its debt on the date of maturity. You can monitor JGB price to tell when it is going to happen.

  6. Add me to the list of people who would probably leave if they implemented a wealth tax. Instead of dreaming up of insane new taxes to impose upon the population, the NTA should start enforcing the existing tax rules and close some of the more egregious loop-holes. The level of tax evasion here is bonkers.

  7. This really annoys me. I’ve had investments that lost money. As we get older I’m more and more cautious about investing here – and if you invest overseas there’s the exchange rate issue that could be a real downer. 10 million is not a lot, when you think how unsure the future is in terms of health care and cost of living rises. So what it’s saying is “if you have enough money to save the government has a right to some of it”? I believe in people paying higher taxes on income and on the interest from investments – but this stinks!!

  8. We wouldn’t leave the country because of this; regardless of taxes, our real income is almost certainly higher here than it would be anywhere else in the world, and if we were to move somewhere else for retirement, again, it wouldn’t be because of this.

    1. Likewise while we’re working, but a wealth tax would change the equation completely. Fortunately I think it’s about as likely as the government abolishing immigration controls 🙂