Re: Permanent Residency and being taxed on US assets/rental income
Posted: Wed Nov 22, 2023 2:49 am
The ability to deduct interest of the mortgage on your UK tax return was cut three years ago.Tkydon wrote: ↑Tue Nov 21, 2023 1:30 pmIf you have been living in Japan for more than 5 years in the last 10 years, you are a Permanent Resident for Tax Purposes and your Global Income is taxable in Japan, whether you remit funds to Japan or not.vikingslav wrote: ↑Tue Nov 21, 2023 3:45 am Thank you for responding. I agree that it amounts to paying tax here in Japan. I'm unclear about this, but the issue seems to be, as you suggest, that I derive income from the house by renting it out. I wonder if it would be better to sell the house and thus have no income and therefore no higher tax payment (plus higher rate for national insurance plus 30% health payments instead of 20%)? I queried this with the tax people here but they insisted I"m not being taxed twice. I do however feel I am in a situation of double taxation with no representation (either in Japan or the UK). People have gone to war for less...
Under the Tax Treaty between the UK and Japan, Rental Income from Real Estate in the UK is taxable in the UK as locally sourced income.
https://www.mof.go.jp/tax_policy/summar ... n-UKEN.pdf
Article 6 refers.
You run the accounting books in the UK and pay Income Tax in the UK on the Profit after Expenses and Interest but before paying back the principle payment (paying down the debt).
You then have to report the same income in Japan and pay Income Tax in Japan on the Profit after Expenses and Interest but before paying back the principle (paying down the debt).
You could actually claim travel to the UK for management of the property as an expense, and complete the Blue Return instead of the White Return.
You then claim the Foreign Tax Credit in Japan for the Tax paid in the UK, so you will get compensated back that amount of tax and not be double taxed. You only pay the amount of tax of the higher tax country...
If you are a long term resident of Japan and you sell the property, you will not be taxed on the Capital Gain in the UK, but you will be taxed on the Capital Gain in Yen terms in Japan (over the Y500,000 Capital Gain Deduction as it is not your Primary Residence) at 20.315% (15% National, 0.315% Reconstruction, and 5% Residents' Taxes).
You will then lose the income and the opportunity for further asset appreciation.
You should get an Accountant to work out two scenarios for you to see which would be the better course of action.
However, this still exists on the Japanese tax return for foreign held properties. A nice little tax allowance that makes up for depreciation being cut from the Japanese tax return.