Inheritance tax. Leave japan and come back?

[___shadow___]

Some people Amy consider this immoral or something but I need to ask if someone has done this and if it’s possible.

Me and my sister will inherit 3 properties collective value is 2 million dollars (about)

Liquid assets is about 5-6 split two ways.

Then there’s stock and bonds and some other weird investments that amount to I think maybe 3-4 at the moment.

So let’s say I get 6 million.
Tax is pretty high in Japan.
My country has tax free inheritance.

Has anyone ever left Japan for, let’s say 6 months, reapplied for visa and then come back?

My fear is that it would be considered tax evasion but I’m not really sure.

Otherwise I’m considering telling my father to rewrite the will so all the assets etc will be locked in the same place and I get it as soon as I move home to my country.

Edit: inheritance tax is high in Japan is what I meant. From my understanding if it’s a substantial amount of money it’s almost 50%.
Whilst I in general don’t mind paying taxes, I think inheritance tax is a load of crap.

Edit 2: first. Thank you for wishing my dad the best. Hopefully he will be fine but one never knows when they’re pretty far gone with an illness.
Discussing money in a situation like this seems a bit macabre but kind of have to.

I was also thinking about giving my sister the majority of the assets that are holiday homes/apartment. Do t know if that will change anything regarding property tax (don’t know the term) you have to pay when inheriting land.
If I’m not a majority owner maybe I can avoid paying on those. The value of the land is just too high for me being able to pay for it if I also have to pay taxes on the liquid assets.
This I will talk to a lawyer about because its a real bitch to plan if that’s a way to at least avoid a portion of the taxes.

 

[jhalay]

@___shadow___ At this point in my life, for 6 million dollars I'd leave Japan for good.

 

[kristhuy]

@___shadow___ I assume you hold a table 2 visa or have lived in Japan for at least 10 years (otherwise you wouldn't be worried about paying inheritance tax on overseas assets).

My fear is that it would be considered tax evasion but I’m not really sure.

All that matters is whether your 住所 (as defined by Article 22 of Japan's Civil Code) is in Japan at the time of the death. Your 住所 is "the base of your life". It's the residential location you are most closely tied to by virtue of your occupation, family, and living arrangements.

There is a rule-of-thumb that once you have a 住所 in Japan you will keep a 住所 in Japan unless you leave Japan with the clear intention to live outside Japan for more than one year. But this can vary depending on individual circumstances. The main problem with the kind of plan you are describing is that your stay outside Japan appears temporary in nature, in which case you would normally retain a 住所 in Japan while you are gone.

In any event, considering the amounts of money involved and the fact-heavy nature of 住所 determinations, you should probably seek professional advice on the matter.

rewrite the will so all the assets etc will be locked in the same place and I get it as soon as I move home to my country

That sounds like a trust, which would not prevent you from owing inheritance tax on the assets. Japanese tax law requires someone to own the assets after the death occurs. They can't just sit unowned waiting for you. If that's what the will says, you will be deemed the owner from the moment of death (for Japanese tax purposes).

So the type of will that would work is one that explicitly leaves you no share of the inheritance. (If you move back to your home country, you could perhaps hope that the other heirs gift you some proportion of their inheritance?) I'm not sure if that would be a risk worth taking though. After all, a taxed inheritance is still better than no inheritance.

 

[___shadow___]

@kristhuy I’m coming up on 10 years.
My father is not deceased but he is not doing well (obviously don’t want to get into details) so I’m just checking here if anyone has a similar situation or has done anything like that.

I don’t have PR and nor am I married.
However work is here obviously.

Yeah, trust fund is the word. It would be an arrangement that it’s written in my sisters name but it’s not accessible without my consent.
We’re in good terms and all that and my father has divided the inheritance accordingly(he himself used to be a lawyer) so there is not a chance that we can fight over it.

I will seek legal help here as well when the time comes but needed to ask here if there’s any basic things I need to know.

I appreciate you taking the time to reply!

 

[ethzz]

@kristhuy

That sounds like a trust,

Curious--is there any distinction between a revocable trust, which I think an inheritor would become trustee/controller of, and an irrevocable trust, where the inheritor has no control over what happens within the trust, and no choice about when any money/assets are distributed?

An analogy for a similar lack of control might be stock XYZ. I own it, and the ex-dividend date goes by, meaning I'll get the dividend, it is owed to me, but then I'm only taxed on it when it is paid, the pay date.

 

[kristhuy]

@ethzz To avoid potential terminological confusion:

A revocable trust is one where the settlor (person who owns the assets before the trust has been created) retains control over the terms of the trust during its operation. For example, they can add/remove beneficiaries, add/remove assets, be a trustee or beneficiary themselves, and even terminate the trust.

An irrevocable trust is one where the settlor has basically no ongoing control over the terms of the trust. Once the trust has been set up, any changes would need the consent of all beneficiaries.

In terms of Japanese gift and inheritance tax, the critical factor is whether the named beneficiary is truly a beneficiary (which would make the creation of the trust a taxable event for the beneficiary) or whether they are merely a "future beneficiary" (someone who will become a beneficiary of the trust when some event happens in the future).

This issue was discussed in more detail here, for example.

 

[mariangel]

@___shadow___ 6 million is well into retire live off investments for the rest of your life territory. You may want to break your ties with Japan for 3-5 years. The money you save in taxes would buy you a nice place in Japan when you return. But get professional advice on how to do it right.

 

[twm]

@mariangel That's my thought. I mean...Japan is nice, but, with that amount you could basically take a vacation for 5 years. Why even tie yourself down in one location tbh? Not sure what taxes would be on a 6M inheritance, but I wouldn't want to pay it if I were OP just for the right to remain a PR in Japan.

 

[mariangel]

@twm With that kind of money they could get a PR back easily.

Taxes would be at least 2 million USD.

 

[funker]

@mariangel Also, the newer Rich Tourist Visa seems a safe and useful option at those levels of wealth, unless one needs to work for whatever reasons people that do that might have.

The tax bill would crush my soul.

 

[fancyface]

@twm

Why even tie yourself down in one location tbh?

I guess at this point I am just an Old but having a home home is more appealing to me than being rich, as long as I have enough to enjoy life at that home.

 

[mariangel]

@twm

Why even tie yourself down in one location tbh?

One can't have money and not worry about residency. One or more countries will assert the right to tax nomads.

 

[funker]

@twm Sorry, but a vacation for 5 years? Do you mean that 5-6 million dollars is not enough to just take a permanent vacation (retire)? I am just curious about people's different takes on How Much is Enough?, to be clear.

I agree it's not worth paying it in the OP's case. Cut rope, go away, stay Out Out for a year, come back as desired. The grapevine claims the newer Rich Tourist Visa is renewable, and that would work fine with that much money and income.

 

[buffalopat]

@funker Mate if it was me. SE Asia, likely Bali. I’m goooone, living the surf prince lifestyle

 

[biblicism]

@___shadow___ I’m in a similar situation and sought professional legal advice from a lawyer with familiarity in both Japanese and US tax law (I’m American). He confirmed what others are telling you — you have to leave to avoid inheritance taxes. I’ve got a wife and 2 very young kids so relocating is not a simple decision for us.

Once you leave (and give up your tax residency, i.e. juusho), you are safe. However, Japan determines your inheritance liability on whether you have resided in Japan for at least 10 of the last 15 years ending at the time of death. So if you return before the death, you could regain tax residency and be subject to inheritance taxes. The only way to “reset” is to create a 5 year window (not necessarily consecutive) of non-residency within the 15 year period.

I was also informed that Japan would likely never find out about the inheritance. There is a reporting agreement with the US; however, the US does not prefer to report on its citizens’ finances. That said, I would become an international tax criminal and could end up facing serious consequences or fines in addition to the taxes owed. Not an option I’m considering.

We’re considering whether to leave for 5 years while my eldest is in elementary school, then return with a fresh start on my tax residency. We like Japan and want to live here, but like you feel the tax is too much to bear. If we don’t leave, we’ll risk having to pay inheritance tax to give our children stability through their school years, and leave when they enter university.

I’d be grateful to hear any ideas or feedback from the community on the above.

Edit to add: I’m married to a Japanese citizen but maintain a table 1 working visa for tax purposes.

 

[kristhuy]

@biblicism

if you return before the death, you could regain tax residency and be subject to inheritance taxes. The only way to “reset” is to create a 5 year window (not necessarily consecutive) of non-residency within the 15 year period.

Just to clarify, regaining tax residency (i.e., reacquiring a juusho in Japan after not having one) within five years of leaving cannot affect your liability for inheritance tax during the period you didn't have a juusho in Japan. The time period you are away is obviously a relevant factor for determining whether you have a juusho in Japan, but the "10 of the last 15 years" threshold can only ever apply to people while they have a juusho in Japan.

At the same time, being away for a full five years can affect your liability after reacquiring a juusho in Japan—if you return to Japan holding a table 1 visa. So it is right to say that: if you want to return to Japan on a table 1 visa, and you want to be able to receive tax-free gifts/inheritances of overseas assets after you return, then you should stay outside Japan for at least five years. I suspect that is what you were saying but I just wanted to make it clear for others.

 

[biblicism]

@kristhuy Yes, thank you for clarifying both points.

 

[funker]

@biblicism Great info and perspective, so thanks.

You could leave and combine the inheritance tax thing with showing your kids The Home Country, and then come back to Japan. I find the tax rates on current North American inheritance amounts piratical (assuming that money has no connection to Japan). All the analysis and rationalising aside, I feel it comes down to a gut decision. I have decided I cannot and will not pay them that much money for money they had no hand in producing.

 

[biblicism]

@funker That’s how we’re thinking about it as well. It would be nice to give the kids some international exposure before the meat of their primary education begins.