My Inheritance Tax Experience

[Manifesto7]

Hi RetireJapan,

I have found a lot of value in the forum but haven't been able to contribute much of anything. However, I recently completely a relatively simple inheritance tax return, and I feel like my situation might be common for readers here. For those coming home from the local tax office with their 4cm thick pack of forms in their hands and a head full of questions, I feel you. Here is how I proceeded.

I am 43, been here for 18 years, on a spousal visa, and from Canada. My grandparent passed away on March 1st. The estate in Canada had two benificiaries, my mother (60%) and myself (40%). The estate SALD (Statement of Assets Liabilities, and Distributions) consisted of a property assessed at $1,176,000 and the $2,500 CPP death benefit. Any other assets were held jointly by my mother and not part of the estate.

An important point is that the exchange rate used in calculations was the exchange rate on the date of death. This was lucky for me considering the summer swoon of the yen this year.

Exemptions on my share are a 30,000,000 personal exemption and 6,000,000 exemption from my mother's name being on the will. My share was over this amount so I needed to pay inheritance tax on the overage. I originally went to my local tax office for advice, but being in the countryside none of them had a clue how to help with an overseas inheritance, so I just got the standard package of papers and was told "do your best".

Not having the time, language level, or inclination to muddle my way through, I turned to google and found a tax lawyer/accountant in the closest urban center who had an English homepage. Despite our initial consultation proving that we both overestimated our respective second language levels, I signed a contract with him. He rubbed his temples for a while and said he would do his best.

The documents I proveded him to complete the tax return were:
- the will
- the death certificate
- the invoice from the funeral home (which was included but was not deductable because it didn't fit whatever parameters they use)
- the SALD
- the title register for the property
- the government assessment of the property (easily found online)
- my ID (passport) and proof of residency (resident card)
- my keiseki and juminhyo from city hall
- They wanted to above from my mother as she is on the will, which obviously doesn't exist in Canada. So, I instead gave my mother's DL (to prove she wasn't a Japanese resident) and birth certificate (in lieu of the koseki)

The lawyer took these documents, translated them into Japanese, wrote an explination of the Canadian probate system in Japanese for the tax office, and completed the required Japanese forms. He prepared the noufusho (payment slip) for me to use at the post office, which I returned to him to prove I paid the tax. Once he had proof of payment he sent everything to the tax office, and then sent me a copy of all the douments as well.

The tax office is currently looking at the tax return, but barring any adjustments they make I think the process is finished. There is a 10 month window to file after the date of death, and considering I had to wait for probate to finish in Canada it was tight but doable.

I feel I had a decent grasp of the rules before I went to the lawyer, but there were some things that were new to me, especially the difference between direct heirs (children) and heirs two or three steps of immediacy away (like me as a grandchild). To be honest, I am still not confident in my understanding of those nuances, but to be even more honest, I was kind of burned out by the process and just nodded along as the details were explained in Japanese.

I think that is about it. Sorry that this isn't very technical, but if it helps someone find a starting place or figure out what documents they will need, then it will have served its purpose. If you have any questions I will do my best to answer. Have a great 2023!

[Manifesto7]

And, now that you are here, maybe you can answer a simple question for me that probably doesn't need its own thread.

My assets in Canada are now over 50,000,000 yen, so I think I need to file a "statement of overseas assets". The thing is, other than this inheritance tax I've never filed anything at the tax office in nearly 2 decades. Work takes care of it all. If I do indeed need to file this, does anyone have a good guide on how to go about it? Thanks a lot.

[sutebayashi]

Condolences for the loss of your grandparent. And thanks for the write up, it’s something I will have coming to me one day too.

I have not had to do the 50,000,000 yen assets report myself, but compared with what you had for the inheritance tax, I think it looks more easier with just a form like this required, if I am not mistaken: https://www.nta.go.jp/taxes/tetsuzuki/s ... 809_03.pdf

I suppose it will depend on what those assets are in as to how difficult the reporting might be. For example it is easy to value cash and liquid assets, but if the assets remain locked up in property then that would seem to be more complicated.

Another thing though (this is the reason why these offshore assets are to be reported), is if you come to derive income from those assets, and your total non-salary income is more than 200,000 yen per year, you will need to report that income and pay tax on it too. Maybe you can apply for a deduction if some of the income is already taxed in Canada first.

So, you may need to deal with an annual kakutei shinkoku submission together with the foreign assets report.

[Tkydon]

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[Manifesto7]

Condolences for your loss.

Exemptions on my share are a 30,000,000 personal exemption and 6,000,000 exemption from my mother's name being on the will. My share was over this amount so I needed to pay inheritance tax on the overage. I originally went to my local tax office for advice, but being in the countryside none of them had a clue how to help with an overseas inheritance, so I just got the standard package of papers and was told "do your best".

No, that's all you. 30,000,000 on the total Estate inherited by all Heirs in Japan and 6,000,000 exemption per Heir in Japan.
Nothing to do with your mother, as she is not an heir in Japan, and not subject to Japan Inheritance Tax. You are the sole heir in Japan.
If she was in Japan, the total exemption would have been 30,000,000 on the Estate inherited by all Heirs in Japan and 2 x 6,000,000 exemption for two Heirs in japan...

You're right. I went back and looked at my notes and my initial calculation was 2x6 million which included my mother (and would have got me out of almost all the tax), but it was adjusted to 1x6 million for only me with the same explanation by the lawyer. And her being included is what triggered the extra 20%. Getting dotty in my old age, thanks for the clarification.

[Gulliver]

Sorry that this isn't very technical, but if it helps someone find a starting place or figure out what documents they will need, then it will have served its purpose. If you have any questions I will do my best to answer. Have a great 2023!

Thanks for sharing your experience. Real world info is always helpful.

Question: did your grandparent have a will, living trust, etc? And, if so, did that make the probate process any faster/smoother?

[jcc]

If possible are you able to share the fee you had to pay the accountant? Was it worth it?

[robster]

Condolences for your loss.

Exemptions on my share are a 30,000,000 personal exemption and 6,000,000 exemption from my mother's name being on the will. My share was over this amount so I needed to pay inheritance tax on the overage. I originally went to my local tax office for advice, but being in the countryside none of them had a clue how to help with an overseas inheritance, so I just got the standard package of papers and was told "do your best".

No, that's all you. 30,000,000 on the total Estate inherited by all Heirs in Japan and 6,000,000 exemption per Heir in Japan.
Nothing to do with your mother, as she is not an heir in Japan, and not subject to Japan Inheritance Tax. You are the sole heir in Japan.
If she was in Japan, the total exemption would have been 30,000,000 on the Estate inherited by all Heirs in Japan and 2 x 6,000,000 exemption for two Heirs in japan...

I feel I had a decent grasp of the rules before I went to the lawyer, but there were some things that were new to me, especially the difference between direct heirs (children) and heirs two or three steps of immediacy away (like me as a grandchild). To be honest, I am still not confident in my understanding of those nuances, but to be even more honest, I was kind of burned out by the process and just nodded along as the details were explained in Japanese.

You are entitled to a Foreign Tax Credit for any Estate Taxes paid in Canada on your portion of the Estate.

If your mother was not an heir, then you would have inherited without the Surtax on Inheritance Tax, as the most direct decendent by blood, but as your mother is the child of the deceased, and the most direct decendent, you as the grandchild do not qualify, and have to pay the 20% surcharge of the prorated (your) inheritance tax.

Can anyone clarify with certainty the question of the exemption of 6m "per heir". This post suggests the "6m per heir" applies only to heirs who are in Japan and not to heirs domiciled overseas. But I have read in other posts on this forum, and on other websites, that it applies to all heirs with no mention of whether in Japan or not. The nta website does not specify about the number of heirs "in Japan" although that may be an error of omission/ambiguity. Does anyone have clear information from a credible source? (With 4 other co-heirs overseas it will have a large bearing on my tax obligations....)

[emikami]

Can anyone clarify with certainty the question of the exemption of 6m "per heir". This post suggests the "6m per heir" applies only to heirs who are in Japan and not to heirs domiciled overseas. But I have read in other posts on this forum, and on other websites, that it applies to all heirs with no mention of whether in Japan or not. The nta website does not specify about the number of heirs "in Japan" although that may be an error of omission/ambiguity. Does anyone have clear information from a credible source? (With 4 other co-heirs overseas it will have a large bearing on my tax obligations....)

My understanding is that the exemption is per statutory heir and has nothing to do with where the person actually lives. If the assets are in Japan or if deceased was domiciled in Japan or if you were domiciled in Japan in the 10 years prior to death, then it is subject to Japanese inheritance tax.

Statutory heir are people whom normally will be inheriting the assets if there were legal will. So if the last parent dies and there were 2 children surviving, there will be 2 statutory heirs. If one child lived in Japan and the other lived outside of Japan, they both have equal standing as statutory heir.

There might be some issue claiming you are a child, hence a statutory heir if you don't live in Japan and have never lived in Japan. If Japan has no records of your birth and the relationship to the deceased, then you must prove you are a legitimate statutory heir by showing marriage certificate and birth certificate. You may need a certified translator to translate those official documents into Japan. It is time sensitive.

If a child outside of Japan decides they don't need the inheritance, it might be helpful to claim they are still the statutory heir because it can reduce the inheritance tax for the others whom are inheriting. If they don't do anything, the tax may be calculated as if you didn't exist thus not only will there be a 6 million lower exemption on the estate, but it will be divided among the other statutory heirs and calculated separately for their share based on if there were no will thus raising the total tax.

The actual division of assets is decided in a meeting with the beneficiaries (Isan Bunkatsu Kyogi). They can all agree to follow the will or they can decide to ignore the will and come up with their own division. As long as there's agreement among the beneficiaries.

Note: Beneficiary can include non-statutory heir whom is stated as beneficiary in the will. So maybe a nephew will be a beneficiary but not a statutory heir. For such beneficiary whom is not a statutory heir, their share of tax will be increased by 20%. Since the 6 million yen exemption only applies to statutory heir, listing a bunch of non-statutory heir beneficiaries will not reduce the total tax and probably increase it because of the 20% increase for such beneficiaries. You can adopt up to 4 children to increase the number of statutory heirs to reduce the inheritance tax but you cannot decrease the inheritance tax just by increasing number of beneficiaries listed in the will.

[Tkydon]

Emi,
I wonder if you can clarify what would happen if the entire estate of a non-Japanese decedent was located outside Japan and all heirs and legatees are non-Japanese located outside Japan, never having been to or lived in Japan, and with no other links to Japan, except for the Heir or Heirs, or Legatee or Legatees who would fall into the category of Taxable in Japan; Japanese citizen, long-term resident, having lived in Japan in the last 10 years, etc.?