A couple of inheritance tax questions

[JimNasium]

I know this forum is littered with inheritance tax questions, but a few that I haven’t seen answered:

Can you use the inheritance tax for each of you parents? So if my father passes it will be 30m + 6m for each heir. Then I will get another 30m +6m when my mother passes?

Also, what about distant relatives like an aunt or cousin? Or if people are young enough on this board, what about grandparents?

Lastly, what kind of paperwork would the tax office want for inheritance tax? Is there a document that you receive from your home country that lists what your inheritance was?

[sutebayashi]

I am not an expert, but I am facing a situation myself so very interested in the topic.

I would assume one can receive inheritance twice, one for each parent (although I would assume the authorities may expect to see some proof of death as part of any tax declaration submitted).

With the yen plunging in value recently, this system of tax seems rather unfavorable. It is going to mean foreigners with dying relatives overseas are on the hook for even higher amounts of tax, because the yen’s plunge is pushing inheritances from abroad into higher and higher tax brackets. As the yen plunges, we will get less and less of what our own kin wanted passed down to us, while the government here will get more and more.

As far as I can tell, the only way that the Japanese authorities can learn about these offshore inheritances is if they are declared, or if they earn income such as interest, or capital gains are realized. Certainly legitimate banks and brokers overseas these days are asking for Japan tax ids.

Personally, I do not know 100% what the future holds, and it could well be that I retire back in my home country sometime in the future, and I hope to still have decades of life to go myself. I cannot see much sense in reporting such to the government, if they would take a large chunk of it, and then something happens and I find myself living back overseas again later in life, and in want of that money… if they would give it back to me in such a turn of circumstances, that would seem more fair…

It would be more fun to buy a bunch of gold bars, bury it in a paddock overseas somewhere (or in a proper safe), and leave a treasure map for the kids to go in search of one day in future…

I started to look at specialist advisors, and Chester Tax (https://chester-tax.com/) comes up as a top hit on Google, but I am pretty turned off by the way they structure their fees to be in proportion to the size of the inheritance in question. Not as bad as the tax rates, for sure, but if one will end up paying hefty amounts to the NTA anyway, I am not sure if there is even value in using their services. Would be interested to learn if there at flat fee alternatives.

In my case, there will be other heirs overseas, so rather than inherit myself and give so much to the government here, I am more inclined to have it that other heirs, or good causes at least, get it instead of “my family plus the Japanese tax authorities and tax advisors”.

[captainspoke]

...
As far as I can tell, the only way that the Japanese authorities can learn about these offshore inheritances is if they are declared, or if they earn income such as interest, or capital gains are realized. Certainly legitimate banks and brokers overseas these days are asking for Japan tax ids.

... I cannot see much sense in reporting such to the government, ...

Please don't try any tax shenanigans. Depending on your home country and its relationship with japan, both may adhere to CRS (common reporting standards), making your accounts and any tax returns in your home country easily visible to the tax agency here--all they have to do is ask, and they do not need your permission, nor do they have to tell you that they have done so.

[sutebayashi]

Indeed, I imagine my home country and Japan have such an arrangement and I already supply my tax ID to financial institutions overseas, as well as pay taxes due on any such income.

As for inheritance though, making arrangements so as to not taking legal possession of it, seems both feasible and like a better option than taking possession and thus declaring it all to the Japanese authorities and gifting them a big chunk of it as a result. I would rather my overseas family members have it in that case. (I am not in dire need of the money myself, and would like to abide by the will of my family, and handing much over to the government here is absolutely not their will.)

Yes it does mean that one forgoes the inheritance here in Japan, so long as Japan maintains an inheritance tax, and one maintains residence here, which might be while I live. If so, so be it. (There is no wonder in my mind why places like Sweden abolished these taxes for economic reasons, seeing the scale of the unproductive inheritance tax advisory industry here in Japan, and other negative effects.)

[sutebayashi]

As for the 30m + 6m per heir thing… I can see how this works in Japan, but for assets inherited from abroad, I am wondering if declaring inheritance tax per each heir would pass muster - e.g. if the inheritance is explicitly directed at each heir individually, can each heir get 30m + 6m tax free, rather than one recipient declaring on behalf of all heirs and getting only 30m + 6m x no. of heirs.

[RetireJapan]

As for the 30m + 6m per heir thing… I can see how this works in Japan, but for assets inherited from abroad, I am wondering if declaring inheritance tax per each heir would pass muster - e.g. if the inheritance is explicitly directed at each heir individually, can each heir get 30m + 6m tax free, rather than one recipient declaring on behalf of all heirs and getting only 30m + 6m x no. of heirs.

https://www.retirejapan.com/blog/overse ... -in-japan/

[Tkydon]

As for the 30m + 6m per heir thing… I can see how this works in Japan, but for assets inherited from abroad, I am wondering if declaring inheritance tax per each heir would pass muster - e.g. if the inheritance is explicitly directed at each heir individually, can each heir get 30m + 6m tax free, rather than one recipient declaring on behalf of all heirs and getting only 30m + 6m x no. of heirs.

The 30m + 6m per heir thing means :

You take the Total Portion of the estate inherited by all heirs in Japan.
You then calculate the Total Basic Deduction against the Total Portion of the estate inherited by all heirs in Japan as Y30M + Y6M per heir in Japan (including Japanese Citizens Overseas).

So for one Heir, that one Heir can deduct the full Y36M
For more than one Heir, the Total Deduction of Y30M + Y6M per heir is deducted from the Total Portion of the estate inherited by all heirs in Japan.

Then, the additional processing is carried out, the same as if the Estate was in Japan...

There are Statutory Shares for Statutory Heirs that might apply...

Then, Divide the Aggregated Net Assets after exemption to each heir.

Then, Apply the Progressive Inheritance Tax to each heir's portion separately.

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...

Then, Sum the Total Taxes across all heirs calculated above.

Then, Divide the Total Tax Amount across all Heirs in proportion to the size of their portion of the Total Portion of the estate inherited by all heirs in Japan.

Then, for each heir, apply additional Deductions and Surcharges:
Spouse - Additional Deduction of Y160M, with some caveats...
Non-Felial-Relative - Neither Spouse, Parent, Child nor Grand-child - Add 20% Surcharge for each heir to a max of 70% of the total Portion of the estate inherited by all heirs in Japan.

There is a credit for any Gift Tax paid on gifts received within the last 3 years of the deceased's life
and some other credits for Minor or Handicapped person, and for Chain Succession, if inheritance taxes had been paid on the same assets in the previous 10 years, and
Foreign Tax Credit for Foreign Inheritance and Gift Taxes paid on the Total Portion of the estate inherited by all heirs in Japan, allocated to the heirs in proportion to their portion of the Total Portion of the estate inherited by all heirs in Japan.

You can apply this multiple times to multiple inheritances, and note the Credit for Chain Succession applies, if Japanese inheritance taxes had been paid on the same assets in the previous 10 years.

Each Heir then declares his Inheritance Tax separately.


I think that is the gist of it...

[sutebayashi]

https://www.retirejapan.com/blog/overse ... -in-japan/

Ah yes, this seems to be exactly what I am thinking. I am going to go through that carefully and locate the relevant comment in Reddit too (never used it until now)
Thank you for highlighting that info!

The 30m + 6m per heir thing means :

You take the Total Portion of the estate inherited by all heirs in Japan.

Thank you for the input.
But this is the part that I was doubtful of - indeed I certainly think that is how it works for a vanilla inheritance in Japan, from Japan residents to their heirs.

But if the inheritances are coming from overseas, consider that two heirs might be recipients. Handling each as a separate inheritance seems like it could pass muster.

You can apply this multiple times to multiple inheritances,

This too, is a very useful, and important fact.

For example, if one overseas parent passes / has passed away but no tax was due, none need be / have been reported.
Same again for the next parent to pass away.

These days there is that requirement for tax residents to report overseas assets of over 50 million yen to the authorities. One inheritance of up to 36 million yen is under this 50m threshold, but a second one would put a two-time heir over the threshold, assuming all else the same (eg none of the first inheritance was spent and foreign exchange rates didn’t change much).

Reporting the existence of those assets is one thing (and reporting income earned on it for income tax purposes), but it would seem a single heir of foreign origin assets might inherit 72m in two parts before being liable for inheritance tax.

Each Heir then declares his Inheritance Tax separately.

… right, if tax is due at all. Yes personally I tend to think it better to declare it anyway even if none is due, just to be more sure of avoiding raising suspicions upon any of the heirs, and to make one’s understanding of the situation crystal clear to the tax people.

[Tkydon]

The fact that you have overseas assets of over 50 million yen does not in itself constitute a taxable event.

It is just a report of assets.

If there was no taxable gift, inheritance or income; interest, dividends or capital gains in the tax year, then there is no tax liability.

[sutebayashi]

Can you use the inheritance tax for each of you parents? So if my father passes it will be 30m + 6m for each heir. Then I will get another 30m +6m when my mother passes?

Also, what about distant relatives like an aunt or cousin? Or if people are young enough on this board, what about grandparents?

I have been reading more and had more thoughts.

My impression is that there are no simple answers to all of this, it really depends on various circumstances (no wonder there is such an industry around providing advice and support).

At least from Japan’s perspective, if it were concerning vanilla domestic inheritance, then in the first place the heirs are defined in a certain way.

But this seems to become complicated when the decedent is a non-Japanese overseas resident. They can draft a will as they please and can designate who gets what and so forth, without any consideration of what Japanese rules may say.

In that case, what is the definition of “heir”?

My assumption was that an “heir” would be, a person designated in the will, but I’m not sure at all.

Take a case where Grandpa is overseas, his child in Japan has already died, and he names his Grandkids in his will. Are they “heirs”? Are they getting inheritance or is it bequest?