Estate
Estate - Living in the US, Returnees to Japan, International tax, Tax planning
What to Know About Inheritance and Gift Taxes After Returning to Japan
Once you return to Japan, the scope of inheritance and gift taxation changes significantly.
What You Need to Know About Inheritance and Gift Tax After Returning to Japan
If you return to Japan, it’s crucial to understand that the tax implications of inheritance and gifts can vary significantly based on “when, where, and from whom” the transfer takes place.
What Is Subject to Taxation?
Not only Japanese nationals, but also U.S. citizens residing in Japan under status-based visas (such as a Japanese spouse or other family-based visas) are subject to Japanese inheritance and gift tax on their worldwide assets from the date they begin living in Japan. The nationality or country of residence of the recipient of the assets does not matter for this rule. Furthermore, individuals who have held both Japanese and U.S. nationalities since birth are treated as Japanese nationals.
Basic Exemption Amount for Inheritance Tax
The tax-free allowance (basic exemption) for inheritance tax is: ¥30 million + ¥6 million × the number of legal heirs (as defined by 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 like the Social Security Surviving Spousal Benefit, may also be subject to Japanese inheritance tax. While U.S. survivor benefits are generally 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 generally 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 U.S. probate procedures or other administrative processes may delay the preparation of funds needed for tax payment by the Japanese filing deadline.
Inheritance Tax Strategies Before Returning to Japan
Consider transferring assets to Japan or establishing a living trust (such as a revocable living trust) before your return.
Consider “lifetime gifting”!
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.
Point
Japanese inheritance tax rates are generally high. While the first inheritance (between spouses) can often mitigate the tax burden through spousal deductions, the secondary inheritance (from parent to child) frequently poses significant tax challenges. Once you return to Japan and become a Japanese resident, inheritance tax planning options under Japanese tax laws become limited in their effectiveness. Therefore, we highly recommend maximizing the advantages of the U.S. tax system while you are still a U.S. resident.
Key Points to Keep in Mind Before Returning to Japan
There’s a lot to prepare before returning to Japan, but here are a few key points to prioritize.
- If possible, sell your U.S. home before returning to Japan.
- Plan your remittance to Japan carefully, considering both tax risks and tax-saving strategies.
- Consider making lifetime gifts while still residing in the U.S.
- It is generally more tax-efficient to close your Roth IRA before returning to Japan.
Point
Tax rules between Japan and the U.S. can be complex, but by preparing in advance, you can ensure a smoother return and avoid unnecessary tax burdens. Ideally, we recommend consulting with a specialist to discuss and implement strategies 1 to 2 years before your planned return to Japan.
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