Inheritance Tax

[mango]

This just came onto the radar screen. Trying to understand my situation.

Long-term resident, spouse of Japanese national. I've been paying taxes in Japan and my home country.

I've recently inherited a house from my parents back home. The land is valuable.

If the house + property was appraised at $1m, that's 112m yen. 55% of that is 61.7m.

I gather there's a basic deduction of 30 million + 6 million yen. So... 61.7m - 36m = 25.7m tax owed. Am I calculating this right?

What if I don't happen to have 25.7m yen in the bank? Am I expected to sell the property in order to pay the tax?

[RetireJapan]

Welcome to the forum!

Happily I think you may be drastically overestimating the potential tax on this one. Check out this post for some background: http://www.retirejapan.info/blog/japane ... ance-taxes

The big questions are:
1. what was the value of the entire estate?
2. were any taxes paid in the other country?
3. how many heirs were there? (as counted by Japanese tax law)
4. how will Japan value the property? (could be lower due to Japanese assumptions)

The tax office should be able to walk you through the tax implications. In my experience they are pretty helpful, and tend to try to make sure you don't pay more taxes than you should. Alternatively if it looks like you'll be paying a lot it might be worth talking to an accountant (税理士) as there may be other deductions you can take to reduce your taxes legally.

Anyone else?

[mango]

Thanks for your quick response. Much appreciated at a moment when my idea to retire in Japan appears to be going up in smoke.

An attempt to answer the questions:

1. Entire estate was appraised at around $1m; it's just land and a house, nothing else
2. There were no taxes on this back home
3. I am the sole heir, no siblings, unless somehow Japanese tax law considers my spouse here an heir
4. No idea how Japan will value the property -- that's why I'm on this forum.

But does any of this change the picture?

It looks like I'm expected to sell the property and hand over 55% to Japan. Unless I win 25 million in a lottery

[RetireJapan]

Okay that makes it an easy calculation. I believe it will be something like this:

1m USD = 112m yen
standard deduction for one heir 36m

taxable amount: 76m
taxes on 76m = 30% with a 7m deduction

Taxes due = 20.7m yen (30% of 69m)

However, that is the worst case scenario. There may be other allowances you can claim to reduce the taxes. Japan may value the property at a lesser amount. Given the amounts involved, I would definitely consult an accountant (税理士).

Please let us know how it works out though!

Anyone else?

[captainspoke]

Not to suggest anything nefarious, but I think appraisals can vary from one appraiser to the next. It might be worth paying for a re-appraisal or two.

[mango]

Thanks, all, for your thoughts on this.

I will seek out an accountant, but the main issue is simply that I don't have the resources to pay 25 or 20 or 15m tax, or whatever.

The only option would be to sell the house, which pretty much blows a hole in my retirement plan.

A re-appraisal, or a 6 million deduction here or there will not make a significant difference.

[RetireJapan]

Perhaps you could take out a home equity loan if that becomes necessary? Then maybe you could pay it back by renting out the house or something. This must be a fairly common situation, so definitely worth seeking professional advice.

[mango]

The house is in very bad condition and cannot be rented at market value. All the value is in the land. There is a mortgage and I have other debts.

I have already been denied loans against the house several times. No way I'm going to get a $150,000 or $200,000 loan to pay the Japanese govt.

The only possibility I see is if land is treated differently from other assets in an inheritance (e.g., cash, stocks, etc., of which I received none).

[RetireJapan]

I guess the first thing is to find out how the Japanese government would value the house/land then.

[mango]

Yes, hopefully an accountant can help clear that up. I did notice the following comment on the main article on your site:

http://www.retirejapan.info/blog/tax-re ... x#comments

Apparently, if you inherit land in America, the American tax laws are used. But cash is different. Japan takes claim to the cash.

This suggests that the tax laws for land would be from the country where the land is located, which sort of makes sense.

If anybody else knows something about this, I'm all ears.