UK houses and capital gains tax

[RetireJapan]

I suspect that Beaglehound is right about inheriting the property on the date of death.

The only ways to avoid paying Japanese CGT as far as I know are:

It would be good to have official guidance on this. Specifically the mechanics of how the estate distributes assets after paying tax and how the NTA views that.

[Deep Blue]

I agree, I strongly suspect that Japanese IHT would be levied on the distributions from the estate after UK IHT has been paid. And it is possible for the estate to distribute assets in any number of ways - as cash, as equitable distribution of chattels, part shares in property etc. I would eat my hat if there isn’t a way to help minimize future Japanese CGT liability on asset disposal.

Having the decedents estate dispose of assets before they are legally inherited is highly likely to be a (CGT) tax efficient option for any Japanese inheritors.

[IloveJapan]

A heartfelt thanks to all you guys for your comments and suggestions. I’ll say the following:

1) Researching the capital gains tax deduction of 30 million, I found that one of the conditions was having proof of earthquake resistance. So I don’t know what the authorizes might think about a foreign property. It could mean foreign property is not eligible, or that earthquake provisions don’t apply to foreign property. Also, the property has to be valued at less than 100 million yen to be eligible for the deduction. It would be interesting to know if anyone else has received the deduction, as apparently the rules don’t expressly exclude foreign property.

2) Regarding UK IHT, yes, usually the estate would pay for IHT, but I suspect not for the capital gains from a subsequent sale, because I think that may be a separate transaction? Also, in the UK the base value would be that at the time of inheritance, while in Japan it would be the time your parents bought the property. So I suspect there is limited scope for offsetting Japanese capital gains with UK capital gains. Do you agree with me?

[northSaver]

Having the decedents estate dispose of assets before they are legally inherited is highly likely to be a (CGT) tax efficient option for any Japanese inheritors.

Personally I'd be gobsmacked if it were as easy as that. This first Google search result suggests that it isn't possible to sell a property in order to pay IHT, which means it isn't possible to sell it before it is inherited. Unless I'm interpreting it incorrectly. What do you think?
https://curtislegal.co.uk/can-i-sell-th ... tance-tax/

[adamu]

This first Google search result suggests that it isn't possible to sell a property in order to pay IHT, which means it isn't possible to sell it before it is inherited. Unless I'm interpreting it incorrectly.

From the article:

The only way an executor can pay the IHT if the estate is tied up in property is to pay the bill out of his or her own pocket and get repaid when the Grant of Probate has been received. The property, or part of it, can then be sold to pay back the money owed

The article mainly seems to be talking about logistics for the executor, who has to pay the tax bill before being allowed to sell anything. But it does look like the property can be sold from the estate before it is distributed to the beneficiaries.

The gov site also mentions selling property from the estate before it is distributed:

https://www.gov.uk/probate-estate/manag ... ing-assets

Here's another article that says property can be sold before the funds are distributed: https://lawhive.co.uk/knowledge-hub/wil ... g-probate/

And the London Gazette saying an executor must sell a property if the beneficiaries do not wish it to be transferred:
https://www.thegazette.co.uk/all-notices/content/100719

However, it also looks like a home is not taxed in almost all cases anyway:

https://www.gov.uk/inheritance-tax/passing-on-home

So then it's back to the question of how Japan treats that

[Deep Blue]

Personally I'd be gobsmacked if it were as easy as that. This first Google search result suggests that it isn't possible to sell a property in order to pay IHT, which means it isn't possible to sell it before it is inherited. Unless I'm interpreting it incorrectly. What do you think?
https://curtislegal.co.uk/can-i-sell-th ... tance-tax/

I read it completely differently to you - it is possible to sell property to pay IHT before distribution. There are safeguards and procedures to follow but it is possible. Like I said, this isn't an edge case scenario - tens of thousands of British estates every year are liable to pay IHT and obviously not all of them will have enough liquid cash to do so with realizing the value of assets.

[northSaver]

So then it's back to the question of how Japan treats that

Thanks adamu, nice links. And yes, the Japanese angle is the big unknown in all this. In the UK, CGT must be paid on any gain between the house value at the time of death, and the actual value it sells for. If the executor of the will is selling it then this period is relatively short (a few months seems to be common), but even so there is a legal requirement to pay CGT on any gains within those few months. Who pays it? The executor, before he/she transfers the money to the beneficiaries.

So what do you tell the Japanese NTA? Do you mention that there was property involved and it was sold before you received your share of the inheritance? If so, will that incur Japanese CGT? Or do you neglect to tell them about the property, possibly breaking the law?

I think we need input from someone who has actually received an inheritance involving property from abroad, and/or ask the NTA directly. Anyone?