Hi guys
My wife (Japanese) and I (foreigner) are considering moving overseas for a while for work reasons. No idea about whether/ when we'll be back.
We bought a house in Tokyo just over 2 years ago. I'm the only one on the title and the mortgage (wife is guarantor). I don't have PR and I'm not planning on applying for it due to exit tax issues. We would like to keep the house and rent it out. Who knows, we could be back some day and want to live it. Equally it is possible that some day we will want to sell it. At the moment, it is undecided so we would prefer to hold onto it. My wife's parents are still alive so we'll be back to visit on a regular basis.
Presumably, I will have to notify the bank that we're leaving the country - we will probably tell them that we will be back in a few years' time. The way I see it, at worst, they could force me to sell the house and repay the mortgage and at best they could force me to refinance and get an investment mortgage at a higher interest rate + require a cash deposit (my current loan is a 100% mortgage and as far as I know investment mortgages tend to be capped at 80%). Any chance the bank would let me keep my current homeloan as is? Does anyone have any experience with this? Do you have any best practice advice on how to deal with this situation?
Would there be any benefit in having my wife on the title? I'm thinking I could maybe transfer some ownerhip to her up the 1.1m gift tax free threshold?
Is there any downside to owning property in Japan when you're a foreigner living overseas as opposed to being Japanese living overseas?
Moving overseas when owning a house in Japan
Re: Moving overseas when owning a house in Japan
If you tell them, they'll be fine.
You have to tell them you're going to rent it out, as you need their permission. They could impose a higher interest rate for rental property, but as it was your primary residence they most probably will not, and let you keep your current loan.
If you sold it now, depends on location, you might make a big loss on it. (Nearly new houses loose a portion of their value, like driving a new car off the lot...)
If you made a Capital Gain, as you've only owned the property for 2 years (less than 5 years) you would be subject to punitive Short-Term Capital Gains Tax on the profit of 30.63%.
More than 5 years, and you would be subject to regular Capital Gains Tax on the profit of 15.315%.
If you rent the property out, you can take Depreciation as a Tax Deduction against regular income in Japan (probably not useful if you have no other income in Japan), but for reference, for a Wood Framed Building that would be 1/22 per year of the portion of the purchase price allocated to the structure (not the land). You might want to discuss with a Property Management Agent or Tax Accountant.
In any case, you would have to appoint a Management Agent and a Tax Agent while you are away.
On the subject of putting your wife on the Deed, as you say, your wife can receive gifts annually up the the Annual Limit of Y1.1M per year free of Gift Tax. But that also costs money for the Stamp Duties to change the deed each time.
In any case, should you die, your wife has a huge Inheritance Tax Deduction of Y160M (subject to caveats) under which she would not have to pay any Inheritance Tax.
There is also a provision for a spouse to receive a one-time gift from a spouse of over 20 years, in the form of Property for Primary Residence or funds to purchase a Primary Residence to the Limit of Y20M, so in that Tax Year, a total of Y21.1M.
But the spouse has to live in the property, so that is probably something to think about if/when you come back to Japan.
There are some other rules about Gift Tax, so you should probably discuss any plans with a Tax Accountant.
If you did not rent out the property, you may have a different set of issues.
If you maintained the property for your family, or for immediate occupancy on your return, they may claim that that did not constitute a break in your residency, and you may be subject to Japanese taxes even while abroad.
You should probably discuss your plans with a Tax Accountant.
'Permanent Resident For Tax Purposes' (PRTP) and 'Permanent Resident' for Immigration (PRI) are different things.
Even if you never take PRI, you will be considered as PRTP if you have been living in Japan for 5 years in the last 10 years.
See:
https://www.nta.go.jp/taxes/shiraberu/s ... df/050.pdf
As you do not currently have PR Immigration Status, you may have to terminate your current visa and apply for a new visa to return to Japan in the future. If so, you would have to complete the exit procedures, which include paying up the year's taxes and the previous year's Residents' Taxes (2021). This is different than the 'Exit Tax', which only applies under certain Visa types, and if you have Total Assets in excess of Y100M.
If you are still registered as Resident in your House on 1 Jan 2023, you will also be subject to Residents' Taxes on 2022 income.
If you do not terminate you Visa Status and instead maintain your visa and take a (Multiple) Re-Entry Permit (Max 5 Years or to the End of your Visa Permission to Stay - renewable outside Japan) or Special Re-Entry Permit (Max 1 Year or to the End of your Visa Permission to Stay - not renewable), and especially if your house is not rented out, then they may consider that you have not broken your domicile and are still resident and taxable in Japan.
You should speak to Immigration and a Tax Accountant.
You will also have to tell your Bank and other Financial Service Companies, and they may curtail service or make you close your accounts when you leave.
Did I forget anything?
I presume from the name that you are from Aus.
If so, you would need to register your change of status with the ATO
https://www.ato.gov.au/bus
You have to tell them you're going to rent it out, as you need their permission. They could impose a higher interest rate for rental property, but as it was your primary residence they most probably will not, and let you keep your current loan.
If you sold it now, depends on location, you might make a big loss on it. (Nearly new houses loose a portion of their value, like driving a new car off the lot...)
If you made a Capital Gain, as you've only owned the property for 2 years (less than 5 years) you would be subject to punitive Short-Term Capital Gains Tax on the profit of 30.63%.
More than 5 years, and you would be subject to regular Capital Gains Tax on the profit of 15.315%.
If you rent the property out, you can take Depreciation as a Tax Deduction against regular income in Japan (probably not useful if you have no other income in Japan), but for reference, for a Wood Framed Building that would be 1/22 per year of the portion of the purchase price allocated to the structure (not the land). You might want to discuss with a Property Management Agent or Tax Accountant.
In any case, you would have to appoint a Management Agent and a Tax Agent while you are away.
On the subject of putting your wife on the Deed, as you say, your wife can receive gifts annually up the the Annual Limit of Y1.1M per year free of Gift Tax. But that also costs money for the Stamp Duties to change the deed each time.
In any case, should you die, your wife has a huge Inheritance Tax Deduction of Y160M (subject to caveats) under which she would not have to pay any Inheritance Tax.
There is also a provision for a spouse to receive a one-time gift from a spouse of over 20 years, in the form of Property for Primary Residence or funds to purchase a Primary Residence to the Limit of Y20M, so in that Tax Year, a total of Y21.1M.
But the spouse has to live in the property, so that is probably something to think about if/when you come back to Japan.
There are some other rules about Gift Tax, so you should probably discuss any plans with a Tax Accountant.
If you did not rent out the property, you may have a different set of issues.
If you maintained the property for your family, or for immediate occupancy on your return, they may claim that that did not constitute a break in your residency, and you may be subject to Japanese taxes even while abroad.
You should probably discuss your plans with a Tax Accountant.
'Permanent Resident For Tax Purposes' (PRTP) and 'Permanent Resident' for Immigration (PRI) are different things.
Even if you never take PRI, you will be considered as PRTP if you have been living in Japan for 5 years in the last 10 years.
See:
https://www.nta.go.jp/taxes/shiraberu/s ... df/050.pdf
As you do not currently have PR Immigration Status, you may have to terminate your current visa and apply for a new visa to return to Japan in the future. If so, you would have to complete the exit procedures, which include paying up the year's taxes and the previous year's Residents' Taxes (2021). This is different than the 'Exit Tax', which only applies under certain Visa types, and if you have Total Assets in excess of Y100M.
If you are still registered as Resident in your House on 1 Jan 2023, you will also be subject to Residents' Taxes on 2022 income.
If you do not terminate you Visa Status and instead maintain your visa and take a (Multiple) Re-Entry Permit (Max 5 Years or to the End of your Visa Permission to Stay - renewable outside Japan) or Special Re-Entry Permit (Max 1 Year or to the End of your Visa Permission to Stay - not renewable), and especially if your house is not rented out, then they may consider that you have not broken your domicile and are still resident and taxable in Japan.
You should speak to Immigration and a Tax Accountant.
You will also have to tell your Bank and other Financial Service Companies, and they may curtail service or make you close your accounts when you leave.
Did I forget anything?
I presume from the name that you are from Aus.
If so, you would need to register your change of status with the ATO
https://www.ato.gov.au/bus
:
:
This Guide to Japanese Taxes, English and Japanese Tai-Yaku 対訳, is now a little dated:
https://zaik.jp/books/472-4
The Publisher is not planning to publish an update for '23 Tax Season.
:
This Guide to Japanese Taxes, English and Japanese Tai-Yaku 対訳, is now a little dated:
https://zaik.jp/books/472-4
The Publisher is not planning to publish an update for '23 Tax Season.
Re: Moving overseas when owning a house in Japan
Thank you very much for this detailed response Tkydon.
Re: Moving overseas when owning a house in Japan
Check on regulations for re-joining the health insurance system when you return. If yiu are lucky, great, but think of the US and Medicare. Drop out and return means the new premium is raised 10% each year (compounding kicks in too)...
Re: Moving overseas when owning a house in Japan
Also, I'm not sure if this is a concern for you but I think that if you leave Japan without a return visa, than if you have paid into the Japanese pension system, you may loose the years, if you are accumulating them for retirement. I think that your Japanese pension number is tied to your residence card number. Also, if you do want the PR status in the future, you would have to start from 0 when or if you return to Japan.
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Re: Moving overseas when owning a house in Japan
This is not a problem.Nancy wrote: ↑Thu Feb 23, 2023 3:15 pm Also, I'm not sure if this is a concern for you but I think that if you leave Japan without a return visa, than if you have paid into the Japanese pension system, you may loose the years, if you are accumulating them for retirement. I think that your Japanese pension number is tied to your residence card number. Also, if you do want the PR status in the future, you would have to start from 0 when or if you return to Japan.
As long as you do not claim the pension refund (you can get up to five years' of contributions returned to you when you leave Japan if you have paid in less than 120 months) then your contributions remain on record, tied to your nenkin number, not your zairyu card number
If you claim the refund, ALL of your pension contributions are cancelled, even the ones over the 5 year maximum refund.
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eMaxis Slim Shady
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Re: Moving overseas when owning a house in Japan
This is actually the opposite in Japan, because health care premiums are based on the previous year's income. People newly arrived in Japan (or returning to Japan) have no previous year's income, so pay low premiums for their first year.
English teacher and writer. RetireJapan founder. Avid reader.
eMaxis Slim Shady
eMaxis Slim Shady