Does Property Income Cause any Tax Problems?

[Designer Bovril]

Hi All,

I’m new here. I’m looking to move to Japan on a spouse visa in the next few months from the UK.

All of my income comes from UK property investments, I don’t have any Japanese income, and I don’t plan to work in Japan.

My current plan is to continue to pay UK tax in the normal way, and to remain a UK resident for tax purposes. From the research I’ve done it seems like I’ll only be charged any tax on my (property) income if the Japanese tax burden is higher than the UK’s.

And from what I can see Japan’s property taxes are gernerally lower than the UK’s so I SHOULD be fine and not need to pay any tax to the Japanese authorities. But that feels like something that should be checked before I get a nasty surprise!

So:
Does my outline of the situation look right, or have I missed something and
Does anyone know who I could talk to to clarify the situation? On this site it often (rightly!) says that you should speak to a professional if you’re not sure. Well, I’m not sure, so which professionals should I speak to?

Many Thanks
Tom

[Tkydon]

If you move to Japan, and if you have not lived in Japan before, or not for more than 5 years in the last 10 years... Then,

For the first 1 year, or until you establish a residence, you will be classified as a Non-Resident for Tax Purposes.

After 1 year, or after you have establised a residence (move in to an address), you will be classified as a Resident for Tax Purposes.

This Tax Resident status then breaks down in to two sub-groups:

If you have been in Japan for Less than 5 years in the last 10 years, you will be classified as a Non-Permanent Resident for Tax Purposes.

If/When you have been in Japan for More than 5 years in the last 10 years, you will be classified as a Permanent Resident for Tax Purposes.
(This is completely independent of, and has nothing to do with your Immigration Status).

Each classification above has different tax liabilities. See Pages 5 to 13 here:
English
https://www.nta.go.jp/taxes/shiraberu/s ... df/050.pdf
Japanese
https://www.nta.go.jp/taxes/shiraberu/s ... df/060.pdf

remitting funds to Japan is not in itself a taxable event, but the income from which it is remitted is a taxable event.

There is a Tax Treaty between the UK and Japan. See Here:
English:
http://www.mof.go.jp/tax_policy/summary ... n-UKEN.pdf
Japanese:
http://www.mof.go.jp/tax_policy/summary ... n-UKJP.pdf
or Here:
https://www.gov.uk/government/publicati ... x-treaties

See Article 6

"Article 6
1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other Contracting State.
2. The term “immovable property” shall have the meaning which it has under the laws of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; ships and aircraft shall not be regarded as immovable property.
3. The provisions of paragraph 1 of this Article shall apply to income derived from the direct use, letting, or use in any other form of immovable property.
4. The provisions of paragraphs 1 and 3 of this Article shall also apply to the income from immovable property of an enterprise."

Therefore, your Profit from the Rental Income, after expenses, management fees and interest, but before you pay the Principle Repayment on any loan on the property will be taxable in the UK.

Your Profit from the Rental Income, after expenses, management fees and interest, but before you pay the Principle Repayment on any loan on the property will also be taxable in the Japan, depending on your Resident Status above.

If you are a Non-Resident, then the income will not be taxable in Japan for upto the first year...
When you become a Non-Permanent Resident for Tax Purposes, if you remit any funds to Japan in that tax year (Japan Tax Year is Jan-Dec) then the remittance WILL be taxable in Japan as if it was from the rental Income, whether it actually was or was not...
When you become a Permanent Resident for Tax Purposes, then the income WILL be taxable in Japan, whether you remit funds or not...

The rules about Overseas or Dual Domicile are very complicated. You will be taxable in Japan while you are registered as Resident in any City or Ward in Japan, under Immigration Status of "Spouse of Japanese Citizen' (on your Zairyu Card).

When you pay tax in Japan, you can claim as a Foreign Tax Credit for the income taxes and property tax paid in the UK which will reduce the Taxable Income in Japan (to zero but no more...), so that you are not Double Taxed on the money. You will only pay the amount equal to the higher rate of tax, whichever that is (UK or Japan).

However, in Japan, all the calculations are in JPY converted at the exchange rates you can find here:
https://www.murc-kawasesouba.jp/fx/past_3month.php
so there may be some discrepency between the GBP numbers and the JPY numbers due to big swings in the exchange rate.

You will qualify to submit the Blue Form Tax return in Japan.

You will have to keep detailed records of all expenses in a particular format for Japanese reporting, but it will probably be the same as the Management Agent will prepare for you UK taxes...

You do get Tax Deductions in Japan for yourself - Individual Deduction of Y480,000, for your spouse if she is not working, or only working part time short hours of Y380,000, for children dependents Y380,000 (Y630,000 if they are students aged between 19 and 23, more if they have disabilities), and you can even claim overseas dependents if you can prove you are supporting elderly parents of Y380,000 per overseas dependent, and deductions for insurance premiums, health insurance premiums, and so on...

You should definitely speak with a Qualified Professional for the full details, and probably have a Qualified Professional prepare your returns for the first couple of years, so that you understand what is going on. You may then be able to prepare your own tax returns in future years, bearing in mind the switch in reporting requirements from Non-Permanent Resident to Permanent Resident for Tax Purposes at the sooner of your 5 year anniversary of arriving in Japan, or when your total time spent in Japan in the last 10 years exceeds 5 years...

Did I forget anything?

You will also have to pay Household National Health Insurance (premiums depend on where you live), and depending on your ages and if working or not, Japanese Basic Pension Premiums of Y16,520 per month.
https://www.nenkin.go.jp/international/ ... nsion.html

If you know where you are going to live, I can look up the National Health Premiums for you.

There is a list of Accountants on this site somewhere...

[Wales4rugbyWC23]

I am planning to finance most of my retirement income through UK rental income. I have been going through a Japanese accountant for the last four years, which I strongly recommend. The Japanese tax office want more information about your UK rentals than what you need to tell the HMRC for your UK tax return, for example building materials and the name of the tenants. However, there is a lot more in Japan what you can claim as expenses on the rentals including stamp duty, mortgage interest and depreciation. All those three are no longer allowed to be a deductible or were never a deductible anyway in the UK.

If you have more than one buy to let, I would also recommend putting the deeds in a family member's name. Gets you off the crippling British stamp duty!!

[Designer Bovril]

Thank you for the replies, especially to Tkydon for your very detailed response! If you have a charity that you support let me know and I’ll happily make a donation as your contribution has saved me a lot of time!

Firstly, ‘usufruct’ Great word that’s not used often enough, well done to the folks writing the treaties, I imagine they still squeeze some goodness out of it.

From what I can tell having read the links that Tkydon posted, I think…it’ll all be fine.
The headline memo seems to be that there is a treaty between Japan and the UK which is designed to ensure that you don’t end up getting taxed in both places.

I will pay whichever is the HIGHER amount of tax between the two countries, but in practice that’s likely to be the UK as the tax rates are higher for property income and there are fewer allowable expenses. So as I already pay tax in the UK I’m unlikely to need to pay any in Japan, although I may need to pay some and then claim it back later.

Also, everyone (including me) seems to agree that it’s important to work with an accountant/tax adviser to make sure that you’re dealing with it in an efficient manner, and because they know how to deal with the mountains of paperwork, particularly on the Japanese side.

You say, “You will qualify to submit the Blue Form Tax return in Japan.” That seems quite exciting…but I get the feeling that excitement will fade fairly quickly once faced with one.

With regards to the National Health Premiums - We’re going to live in Osaka.

Thanks again
Tom

[Tkydon]

With regards to the National Health Premiums - We’re going to live in Osaka.

I just looked up Osaka the other day for another thread..

https://www.city.osaka.lg.jp/fukushi/cm ... sh2023.pdf

Page 9 refers (Page 11 of the PDF)

[vikingslav]

I have property income in the UK for which I pay tax on the rental income. The after tax income is not taxed in Japan but it IS added to Japanese income, which takes me into a higher tax bracket and which also means I have to pay higher health insurance and any medical treatment at 30 percent instead of 20 percent.

Personally this feels like double taxation to me, even though technically it isn't. Even worse it feels like double taxation with double non-representation, since neither Japan nor the UK allows me to vote.

[Wales4rugbyWC23]

I have property income in the UK for which I pay tax on the rental income. The after tax income is not taxed in Japan but it IS added to Japanese income, which takes me into a higher tax bracket and which also means I have to pay higher health insurance and any medical treatment at 30 percent instead of 20 percent.

Personally this feels like double taxation to me, even though technically it isn't. Even worse it feels like double taxation with double non-representation, since neither Japan nor the UK allows me to vote.

Your vote has been just returned.

[Beaglehound]

I have property income in the UK for which I pay tax on the rental income. The after tax income is not taxed in Japan but it IS added to Japanese income, which takes me into a higher tax bracket and which also means I have to pay higher health insurance and any medical treatment at 30 percent instead of 20 percent.

Personally this feels like double taxation to me, even though technically it isn't. Even worse it feels like double taxation with double non-representation, since neither Japan nor the UK allows me to vote.

Your vote has been just returned.

Assuming he's British.

[Tkydon]

The headline memo seems to be that there is a treaty between Japan and the UK which is designed to ensure that you don’t end up getting taxed in both places.

What this means is that you may well get charged tax in both places, but with the Foreign Tax Credits, you would not be Double Taxed on the same income, so that the Total Combined Amount of Tax (both locations) that would be payable would be equal to the Total Amount of Tax that would be payable on the income in the higher tax jurisdiction if it was only taxable in that jurisdiction alone. (Keeping aside the issue of changing Exchange Rates.)