What You Need to Know About Inheritance and Gift Tax After Returning to Japan

After returning to Japan, inheritance and gift tax treatment varies significantly based on when, where, and from whom the transfer occurs, making this important knowledge.

What Is the Scope of Taxation?

Not only Japanese nationals but also U.S. citizens residing in Japan under status-based visas (such as spouse of a Japanese national) are subject to Japanese inheritance and gift tax on their worldwide assets from the date they begin residing in Japan. The nationality or country of residence of the recipient does not matter. Individuals who have held both Japanese and U.S. nationalities since birth are treated as Japanese nationals.

Basic Exemption Amount for Inheritance Tax

TThe basic exemption for inheritance tax is: ¥30 million + ¥6 million × the number of legal heirs (as defined by the Japanese Civil Code).

Spousal Deduction

The spouse can inherit up to ¥160 million or their statutory share, whichever is greater, without being subject to inheritance tax.

Assets Subject to Inheritance Tax

Assets held in a Revocable living trust established in the U.S., as well as U.S. survivor benefits such as the Social Security Surviving Spousal Benefit, are also subject to Japanese inheritance tax. While U.S. survivor benefits such as the Social Security Surviving Spousal Benefit are not subject to income tax when received, for Japanese inheritance tax purposes, the estimated total benefit—based on the recipient’s life expectancy—must be calculated and declared as an annuity.

Be Aware of the Inheritance Tax Payment Deadline!

Inheritance tax must, in principle, be paid in full in cash within 10 months of the date of inheritance. If a significant portion of the inherited assets is located in the U.S., there is a risk that delays in U.S. probate procedures may prevent the preparation of funds needed for tax payment by the Japanese filing deadline.

Consider Lifetime Gifts!

While residing in the U.S., utilizing the U.S. “Unified Credit” (lifetime gift exemption) to make lifetime gifts to family members residing in the U.S. can be a highly effective strategy to reduce future Japanese inheritance tax.

What You Need to Know Before Returning to Japan

There are many things to address before returning to Japan from the U.S. Among them, here are the minimum essential points you should keep in mind:

• We recommend selling your U.S. home before returning to Japan, if possible.
• Plan your remittances to Japan carefully, considering both tax risks and tax-saving strategies.
• Consider making lifetime gifts while still residing in the U.S.
• It is more tax-efficient to close your Roth IRA before returning to Japan.