Japan Inheritance law/tax

[JimmyK]

Hi. There might be a post somewhere on the site dealing with this topic, but I couldn’t find one. Apologies if I’ve missed it. Does anyone have any knowledge of this? I know from some background reading I’ve already done that foreign nationals in Japan are liable for inheritance tax (gift tax too) here on any overseas assets. I believe that Japan has one of toughest tax regimes in the world when it comes to inheritance, though like many countries, it also has a threshold allowance. That seems to be JPY30mill + JPY6mill per heir, but I’m not sure if that effectively means you could inherit JPY36mill before any tax is due, or if it’s calculated in some other way. Anyone who’s lived here for at least 10yrs (regardless of visa type, in most cases) is liable even if they leave Japan. I think if you’ve been away for at least 2yrs (by which that means having completely left the country) you’re not liable, but up to that point, you are. Unlikely to be an issue for me if the threshold for now tax is as I’ve described, but if it’s lower than that it could be an issue one day. Any thoughts or info?

[RetireJapan]

You could start here: https://www.retirejapan.com/blog/japane ... nce-taxes/

[RetireJapan]

This corrects a mistake in the post above: https://www.retirejapan.com/blog/overse ... -in-japan/

[JimmyK]

Thanks! I’ll take a look. Wondering if anyone’s had any first hand experience of this? Delicate and personal subject, so no need to comment if uncomfortable doing so.

[Tkydon]

Inheritance Taxes are very complex, but as a summary,

If there are multiple Heirs in Japan, then the Inheritance Taxes will be calculated on the total amount of the Estate inherited by all Residents of Japan only (not the full value of the estate), and include any Gifts received from the deceased by the heirs in Japan in the last 3 years, minus funeral expenses and other liabilities.

Deduct the Basic Estate Allowance of Y30,000,000 + No. Of Heirs in Japan x Y6,000,000

(36M, 42M, 48M, etc..)

The remainder is the Total Taxable Amount of the Inheritance.

Divide the Total Taxable Amount to each heir in proportion of their Share of the Total Inheritance.

Apply the Progressive Tax Rate to each Heir's portion of the Total Taxable Amount, and Sum them. This is the Total Amount of Inheritance Tax.

Inheritance Tax
Taxable Inheritance after Allowances and Deductions

Band Marginal Tax rate (％) - Max Tax in Band Yen
Under 9,999,000 - 10% Y1,000,000
10,000,000 to 29,999,000 - 15% - Y3,000,000
30,000,000 to 49,999,000 - 20% - Y4,000,000
50,000,000 to 99,999,000 - 30% - Y15,000,000
100,000,000 to 199,999,000 - 40% - Y40,000,000
200,000,000 to 299,999,000 - 45% - Y45,000,000
300,000,000 to 599,999,000 - 50% - Y150,000,000
Over 600,000,000 - 55% - No Limit...

Apportion the Total Amount of Inheritance Tax to the Heirs in proportion to their shares of the total inheritance.

If the Heir is not directly related to the deceased; parent, child, grandchild, spouse, then there is a 20% Surcharge of the amount of prorated Inheritance Tax to a max of Prorated Inheritance Tax and Surcharge of 70% of the total Aggregate Tax amount.

There is a credit for any Gift Tax paid on gifts received within the last 3 years of the deceased's life
and other credits for Spouse (Y160M with some caveats), Minor ((20 - Age) * Y100,000) or Handicapped person, and for Chain Succession (if inheritance taxes had been paid on the same assets in the previous 10 years), and for any Foreign Taxes paid on the (portion of the) estate (inherited in Japan).

As this only applies to the amount inherited by heirs in Japan, it is a very beneficial rate due to the very large deduction(s).

[JimmyK]

Many thanks for this information. I imagine, as with most complex legal and/or tax matters, seeking additional info and advice from a tax lawyer would probably be a good idea. In the case I’m referring to, it would be 1 heir in Japan (a UK citizen living and working here for 10yrs+) and likely 1 heir (possibly more) in the UK. Inheritance tax will be paid on the estate and assets in the UK initially. So, based on Japan inheritance law, that would mean the tax the Japan based heir would be liable for would be anything above JPY36mill? In other words, not tax is payable on an amount less than this? Presumably, tax is levied on the net amount, after UK taxes have been paid on the estate? Also, is any kind of property tax included under inheritance law? For example, where ownership of a UK property is transferred directly to an heir, as opposed to it being sold and sale proceeds bequeathed to a Japan based heir? Apologies for further questions!

[Tkydon]

1 heir in Japan (a UK citizen living and working here for 10yrs+) and likely 1 heir (possibly more) in the UK. Inheritance tax will be paid on the estate and assets in the UK initially. So, based on Japan inheritance law, that would mean the tax the Japan based heir would be liable for would be anything above JPY36mill?

Yes, Anything inherited by the 1 heir in Japan after costs and fees over JPY36mill

In other words, no tax is payable on an amount less than this?

Correct, if the gross amount is less that JPY36mill, then there is no tax due.
(More, if you are the Spouse...)

Presumably, tax is levied on the net amount, after UK taxes have been paid on the estate?

The calculation is done with the Gross amount after expenses, funeral expenses, etc., but before UK taxes, and then after the calculations are complete, you take a Foreign Tax Credit for the Taxes paid in the UK against the Japan Tax amount.

Also, is any kind of property tax included under inheritance law? For example, where ownership of a UK property is transferred directly to an heir, as opposed to it being sold and sale proceeds bequeathed to a Japan based heir? Apologies for further questions!

There are specific rules for the valuation of non-cash property and real estate, and you will be taxed on the value of the property minus transaction costs and fees for the property transfer.

[JimmyK]

Many thanks again for this very comprehensive response to all my points and questions. It’s a pity that paying inheritance tax in the UK doesn’t mean Japan inheritance tax can be avoided, but at least there are some financially beneficial concessions for foreign residents living here.

[Tkydon]

Many thanks again for this very comprehensive response to all my points and questions. It’s a pity that paying inheritance tax in the UK doesn’t mean Japan inheritance tax can be avoided, but at least there are some financially beneficial concessions for foreign residents living here.

You will not be double taxed.

If the UK tax is greater than the Japanese Tax, then the Foreign Tax Credit will cancel out the Japanese Tax completely, so you will have paid the actual UK tax amount.

If the UK tax is less than the Japanese Tax, then the Foreign Tax Credit will cancel out the UK Tax amount from the Japan Tax, so you will have paid the actual Japan Tax amount in full, but partially in the UK and partially in Japan.

And, as only the portion of the estate inherited by heir(s) in Japan is subject to Japanese Inheritance Tax, it is also eligible for the total Japan Allowance, so is taxed at a very beneficial low rate.

[JimmyK]

That’s great! Many thanks!