RetireJapan

My husband (Japanese national and UK permanent resident) and I (UK national) are considering moving/retiring to Japan next year. I hope to obtain a 3-year spousal visa to live in Japan before leaving the UK.
We have lived in the UK for almost 30 years and own our house and run a small business here. We plan to close the business and put the house on the market next Spring with the aim of moving to Japan in the Summer / Autumn. Initially we would rent in Japan as, after living there for 1 -2 years, we may decide we would prefer to return to the UK.
Thanks to this forum I have been able to glean some information regarding the Japanese tax system. As I understand it, I wouldn’t be taxed on my UK income for the first five years (as long as I don’t remit any of my earnings to Japan) but my husband would be taxed from day 1. Here are some initial financial issues I would appreciate some input on:
1. Is there any possibility that if we sell our UK house* early next year and move to Japan later in the year that my husband will be taxed on his 2023 UK earnings / capital gains from the house sale? We are planning to leave the money acquired from the house sale (along with the majority of our savings) in the UK, probably investing this in fixed rate bonds.
Case 2 in this article https://kaikeizine.jp/article/13548/ suggests capital gains tax might be due for my husband’s share of the house but our case might be different if we sell up before moving to Japan and don’t remit any of the money.
*no UK capital gains tax would be due as it is our primary residence

2. I understand that IHT on any inheritance received while living in Japan will be payable by both my husband and myself. Am I correct that there is a spousal allowance of 160M yen which means that in the unfortunate event that one of us dies while there, as long as each half of our estate is less than 160M yen, the surviving partner wouldn’t be hit by Japanese IHT?

3. We both have our own private pension schemes which we were hoping to leave invested for a few more years. In the UK, we can take 25% of these pension pots tax free. Would we have to pay Japanese tax on this (in my husband’s case immediately and in my case if I leave it invested for more than 5 years)?

I appreciate any advice given here would be in an informal capacity and we will have to seek professional advice before we move. Thanks in advance!

On your first question, I and my Japanese spouse were in an identical situation, sold our U.K. house (primary residence) in January 2018 before moving to Japan in June of that year. I didn’t seek professional advice but my research indicated that the 30 million capital gains exemption would apply. Case 2 in your link I think refers to proceeds from a property that is not your primary residence. In any case, it is also my understanding that both of you only become liable for taxation from the date when you actually become resident in Japan, so as long as the sale is done and dusted by the time you land here, you should be in the clear.

Things that come to mind.

1. Capital Gains Tax on Sale of Primary Residence Property in the UK:
The best thing to do would be to sell you property in the tax year before the tax year in which you move to Japan, and then you don't have any Capital Gain in the year in which you return to Japan.

As Beaglehound said, there is a Y30M capital gains exemption for sale of Primary Residence, and can claim Foreign Tax Credits for taxes paid in the UK.

Under Japanese Tax Law, the portions of jointly owned property would be determined by the contribution of each party to the purchase funds, and any difference between that allocation and the actual split would be considered a gift from one spouse to the other...

For you, if you do not remit your portion of the proceeds to Japan in the year of the sale, but instead remit the funds in the next tax year, you would not be liable for capital gains tax, but only any income taxes on any Overseas Assets in the tax year in which you make the remittance.

2. Inheritance Tax:
Japan does not have the concept of communal property between spouses, so both gifts and Inheritance are taxable, but for Inheritance Tax the Spouse Deduction is very large.
The Calculation is rather long:

The total estate will be assessed, valued, including any Gifts received from the deceased by the heirs in the last 3 years, minus funeral expenses and other liabilities.

Deduct the Basic Estate Allowance of Y30,000,000 + No. Of Heirs x Y6,000,000

(36M, 42M, 48M, etc..)

If it's just one heir then Y36M Deduction, but there are Japanese Statutory Inheritance quotas, that might affect the number of heirs.
Under Japanese law, there are certain statutory share requirements so that heirs cannot be cut out of your will completely (See Later)

This is the Total Taxable Amount of the Inheritance.

Divide the Total Taxable Amount to each heir in proportion of their Share of the Total Inheritance.

Apply the Progressive Tax Rate to each Heir's portion of the Total Taxable Amount,

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 -29,999,000 --- 15% --- Y3,000,000
30,000,000 - 49,999,000 --- 20% --- Y4,000,000
50,000,000 - 99,999,000 --- 30% --- Y15,000,000
100,000,000 - 199,999,000 --- 40% --- Y40,000,000
200,000,000 - 299,999,000 --- 45% --- Y45,000,000
300,000,000 - 599,999,000 --- 50% --- Y150,000,000
Over - 600,000,000 --- 55% --- No Limit...


and add together all the tax amounts for all the Heirs. This is the Total Amount of Inheritance Tax.

Apportion the Total Amount of Inheritance Tax to the Heirs in proportion to their shares of the total inheritance.

If the Heir is not directly related to the deceased; parent, child, grandchild, spouse, then there is a 20% Surcharge of the amount of prorated Inheritance Tax to a max of Prorated Inheritance Tax and Surcharge of 70% of the total Aggregate Tax amount.

There is a credit for any Gift Tax paid on gifts received within the last 3 years of the deceased's life
and other credits for Spouse, Minor or Handicapped person, and for Chain Succession, if inheritance taxes had been paid on the same assets in the previous 10 years.

Under Japanese law, there are certain statutory share requirements so that heirs cannot be cut out of your will completely.

When the Heirs are the Spouse and Children, the Spouse receives 1/2 and the Children divide 1/2 between them.
When the Heirs are the Spouse and Parents, the Spouse receives 2/3 and the Parents 1/3.
When the Heirs are the Spouse and Siblings, the Spouse receives 3/4 and the Siblings 1/4 between them.
and others...

Various Credits are then applied.


Gift Tax Credit
Credit for any Gift Taxes Paid on gifts from the deceased in the 3 years prior to the death

The Spouse Credit
The Spouse Credit is calculated as follows:

The Total Taxable Assets (after the Y30M + Y6M + + deduction)

multiplied by

The less of
The Net Taxable Assets (actual acquired) by the spouse
or
The greater of the Spouse's Statutory Share of the Total Taxable Assets Or Y160M
Divided by
The Total Taxable Assets

(Inheritance Tax Law Articles 31 & 32 Paragraphs 1 & 6)

So, effectively an addition Spouse Deduction, Y160M...

And any Foreign Tax Credit,
Etc..


Hence if you are the only heir, the total Tax Free would be the initial Y36M Deduction + the Spouse Exemption Y160M... effectively Y196M...


3. Pensions:
The Taxation of the Pension Pots would be treated differently under Japanese Tax Law.
The Pension and the 25% Lump Sum Payout would not be 'Tax Free', but it will probably work out that the Tax Deductions reduce the taxable amount of the Lump Sum below the minimum threshold so that no tax is actually due... You would have to do the actual calculations.

Against the Lump Sum you would be entitled to a Special Deduction of 400,000 per year for 20 years and 700,000 per year for years over 20 years.
If that is larger than the Lump Sum received, then the Lump Sum will be Tax Free. If the Lump Sum is greater then the excess would first be divided by 2, and then be taxable at standard Marginal Tax Rates.

Income Tax Rates 総所得金額の合計、復興特別所得税、住民税の税率
Band (Taxable Income) - Marginal Tax rate (％) National + Reconstruction + Residents' Taxes = Total
Under 1,949,000 - 5% + 0.105% + 10% = 15.105% = Y97,705 + Y195,000
1,950,000 to 3,299,000 - 10% + 0.21% 10% = 20.21%
3,300,000 to 6,949,000 - 20% + 0.42% 10% = 30.42%
6,950,000 to 8,999,000 - 23% + 0.483% 10% = 33.483%
9,000,000 to 17,999,000 - 33% + 0.693% 10% = 43.693%
18,000,000 to 39,999,000 - 40% + 0.84% 10% = 50.84%
Over 40,000,000 - 45% + 0.945% 10% = 55.945%


for your husband, and also for you if you remit the money to Japan in the year in which it was received, assuming that you are not yet a Permanent Resident for Tax Purposes (having spent more than 5 Years in the last 10 Years in Japan).
Otherwise you can remit in a later year tax free.


Back to Gifts:
Gifts are taxable between Spouses under Japanese Tax Law, and the Gift Tax is charged to the Recipient.
Transfer of reasonable monies between spouses for living expenses is not subject to Gift Tax.
However, large transfers in Japan would be subject to Gift Tax.

Gift Taxes in Japan are pretty straight forward.
One thing to remember is that any Gift received in the 3 year period before the death of the donor will be reassessed for Inheritance Taxes, and then a deduction granted for Gift Tax paid.
Much of the complexity is about the valuation of non-financial assets received.

Gift Tax:
As an individual you can receive Gifts up to the value of Y1.1M in any year completely Tax Free.
Ascertain the Taxable Value of all Gifts in the Tax Year.
Deduct the Basic Allowance of Y1.1M
Deduct any other Allowances (probably none, but there may be some.)
This yields the Net Taxable Gift Amount
This is then taxed at

Gift Tax Rates
Marginal Tax rate (％)
Under 1,999,000 ― 10%
2,000,000 ―2,999,000 ― 15%
3,000,000 ― 3,999,000 ― 20%
4,000,000 ― 5,999,000 ― 30%
6,000,000 ― 9,999,000 ― 40%
10,000,000 ― 14,999,000 ― 45%
15,000,000 ― 29,999,000 ― 50%
Over 30,000,000 ― 55%

Gift Tax Rates For Gifts From Direct Relatives (Parents, Grand Parents, etc.)
Marginal Tax rate (％)
Under 1,999,000 ― 10%
2,000,000 ―3,999,000 ― 15%
4,000,000 ― 5,999,000 ― 20%
6,000,000 ― 9,999,000 ― 30%
10,000,000 ― 14,999,000 ― 40%
15,000,000 ― 29,999,000 ― 45%
30,000,000 ― 44,999,000 ― 50%
Over 45,000,000 ― 55%


Therefore, if you are going to have assets transferred from your husband to you, it would be a good idea to do it in the tax year before you leave the UK, and it would be a good idea to separate your and your husband's assets into separate accounts so that there is no ambiguity about the ownership of the assets for tax purposes, as he will be immediately taxable, and you will not be treated as a Permanent Resident for Tax Purposes until you have been in Japan for more than 5 Years in the Last 10 Years... (not related to your Visa status...)
If you transfer assets from you to your husband, he will be liable for Gift Tax.

The One exception to the Annual Y1.1M Gift Allowance is:
There is a One-Time Opportunity for the transfer of Property, or Funds for the Purchase of Property, for Primary Residence between Spouses of More than 20 Years, to the value of Y20M. So in that year, a total of Y21.1M can be gifted to the Spouse tax free. Something that may or may not be useful to you.

Remitting funds to Japan is not in itself a taxable event. Only Income derived in the Tax Year is a Taxable Event if you remit funds to Japan in that Tax Year.
For your husband, as a Japanese Citizen, his Global income is taxable whether he remits the funds or not.


You should consult a professional in the years before the tax year in which you plan to return to Japan so that you can take advantage of any strategies before the tax year in which you actually return to Japan, when it may be too late.

Thank you for your responses. There is clearly a lot of information to take in. I have another capital gains tax query in relation to stocks and shares isas and our private pension pots. In the UK we don't have to pay capital gains tax on these products. We are thinking we will probably cash in the stocks and shares isas before we move to Japan to avoid the complexities of capital gains, but what about the pension pots - would capital gains tax be due on these when we decide to convert these into annuities / start drawing down?

As a Pension Product, Annuities are taxed as Pension Income, and as such you probably won't have to pay Capital Gains Tax.

If I can assume that you have had this Pension for a long time, say 25 Years, and if you take 25% Lumpsum, then as I previously said, you would be liable for tax on that if the amount was larger than 20 x 400,000 + 5 x 700,000 = Y11.5M
Anything over Y11.5M you would divide by 2 before applying the Standard Marginal Tax Brackets, as above.

When you buy the Annuity, it will then pay you a Pension which will be taxed as Pension Income. You may be eligible for a Deduction / Allowance if the Pension qualifies as a Public Pension

As a Japanese Non-Permanent Resident for Tax Purposes you would only be liable for taxes on the income in the year it was received if you remitted funds to Japan in the year the Income was received. The funds can be remitted in a different tax year, and tax would not be liable on that income, but you would only be liable for taxes on income received in the year it was remitted. (They assume you remit the taxable income...)

As a Japanese Permanent Resident for Tax Purposes you would be liable for Income Tax on the Global income, whether you remit it to Japan or not.

You would have to file the Gross Amount of the Overseas Pension as Pension Income in your Kakutei Shinkoku (14 Mar), as it has not been subject to Japan Withholding Tax. It will be subject to taxation at your Marginal Tax Rate after any deductions or credits.

You may be able to claim the Public Pension Deduction if your pension falls under the criteria for qualification. See Later.

Under Article 17 of the UK Japan Tax Treaty, Pension Income paid in the the UK to residents of Japan is not taxable in the UK, but only taxable in Japan.


Public Pensions' means: public servant pensions, approved fund pensions, national pensions, or other pensions paid under social insurance schemes.

If your pension falls into one of these categories, then you should be able to claim the Public Pension Deduction.

The Deduction amount is calculated based on the total gross receipts of the public pension off-set against the total amount of all other sources of income in the year.

Gross Annual Pension --- Other Income < Y10M --- Y10M to Y20M --- > Y20M

Under 65.

Less than 1,300k --- 600k --- 500k --- 400k

1,300k to 4,100k --- 25% + 275k --- 25% + 175k --- 25% + 75k

4,100k to 7,700k --- 15% + 685k --- 15% + 585k --- 15% + 485k

7,700k to 10M --- 5% + 1,455k --- 5% + 1,355k --- 5% + 1,255k

Greater than 10M --- 1,955k --- 1,855k --- 1,755k

Over 65.

Less than 3,300k --- 1,100k --- 1,000k --- 900k

3,300k to 4,100k --- 25% + 275k --- 25% + 175k --- 25% + 75k

4,100k to 7,700k --- 15% + 685k --- 15% + 585k --- 15% + 485k

7,700k to 10M --- 5% + 1,455k --- 5% + 1,355k --- 5% + 1,255k

Greater than 10M --- 1,955k --- 1,855k --- 1,755k

After this and other deductions



See the Table here:

English
https://www.tax.metro.tokyo.lg.jp/book/ ... k2022e.pdf

Japanese
https://www.tax.metro.tokyo.lg.jp/book/ ... ok2022.pdf

Page 12 - Calculating the Public Pension Plan Deduction (Calculation Table)

Thank you Tkydon, very helpful!