Transcript
Speaker: We have a couple of customers buy via an LLC. How does that look like from an inheritance perspective? If it's a foreign LLC, then it's really easy because then the asset itself is not the property anymore, but the heirs would likely receive ownership in the LLC, which if it's offshore, it's simply an overseas transaction. They don't even need to change the title because the same LLC owns the property.
Speaker: So having it under the corporate structure, you don't need to do anything with the title.
Speaker: Welcome back to the buying a house in Japan podcast, the number one Akiya podcast in the world today. Unfortunately, Joey is not with us. He is exploring Tokyo somewhere downtown. It'll just gonna, it's just gonna be me and Ryan Kubo Zono, our head of Japan operations. Go to replacement for Joey. Welcome to the show, Ryan. How are you doing?
Speaker: Thanks for having me again. It's good to be back and hopefully we get to have a nice conversation again. Is this number three? Number four? How many times have you been on the pod? I'd like to say number three.
Speaker: Could be number four. Could be number four. But okay, for the audience who has not heard your intro, Ryan, give us the quick spiel. Who are you? Sure. Yeah. So as Take mentioned, i am the head of jo Japan operations here for Akiya Mart, Takamori.
Speaker: And then I'm also a financial planner. I have a certified financial planner certification. So I help a lot of cross-border clients with Financial planning matters, especially for Americans coming to Japan.
Speaker: So a lot of people who are you know buying properties through Akiya Mart are going to be non-Japanese residents. So in that context, hopefully I can provide some insight today. Fun fact, Ryan grew up right down the street from me. I'm born and raised in Saratoga and you're Cupertino. Is that right, Ryan? Yes, Cupertino San Jose. Do you always just tell people like, oh, that's where Apple is? Or like, how do you tell people where Cupertino is? Yeah, that's the easiest now. It's Cupertino's so known. So I say that's where Apple HQ is.
Speaker: Cool. Well, I'm excited. We have a really fun podcast today, or maybe not fun, but like an interesting podcast. I'd say that every Akia owner should consider. We are talking about the topic of inheritance, inheritance tax. How does ah you know the property you bought in Japan potentially go down to your future kids or company, things like that.
Speaker: again ryan is a c what it certified financial planner in japan yes a cfp is the shorthand and this is what he deals with i was just like randomly talking to him yesterday and he started talking about inheritance he's like oh and he realized he knows a lot about the space so ryan um you know how how did you get into inheritance type stuff did that just naturally come with your clients in my previous corporate life I was in this expat tax space where I was helping companies with their employees coming in and out of Japan.
Speaker: So generally speaking, they were supposed to be here for shorter term, shorter meaning like two to three years. And some people like Japan or they ended up marrying someone Japanese. It became like a five year and then they ended up just staying indefinitely or a very long time. So a lot of times these issues come up because these individuals decided to stay in Japan for a long time. So they have to plan their life around being in Japan and you know dying in Japan.
Speaker: So I just happened to have a lot of clients who ended up in this same kind of fact pattern of marrying someone Japanese. They thought they were goingnna be here for a few years. They ended up being here for a long time and then they have to worry about how to basically figure out and navigate cross-border taxes for their assets. Let's say someone moved to Japan, they would kind of set you up with like, kind of, you'd be like their their quarterback in making sure things were smooth. Initially, the conversation was more around income taxes and planning around that, but
Speaker: my client's needs were starting to become more diverse and then they wanted to focus more on the longer term financial planning, which unfortunately the the corporate world wasn't supporting or it wasn't really part of the scope of services that a company would provide for their employees.
Speaker: So a lot of things happened and then I ended up just starting to do this on my own. Of course, full disclosure, any kind of tax advice has to come from a licensed tax advisor Zierishi in Japanese.
Speaker: I am not as a Zayrishi, so I just happen to know a lot about these things because I've done the work in the space for a long time. But hopefully I can provide some high level overview of key points to watch out for for individuals hoping to buy a property in Japan.
Speaker: First question for you here. Hey, Ryan, I want to buy an Akiya. This is going to be a sweet hundred thousand dollar spot in Beppu. Man, I'm really pumped. I have a daughter.
Speaker: You know, what happens when I die? So the first thing, major difference, I guess, from maybe some other countries is that Japan is kind of on an inheritance tax basis.
Speaker: So U.S., for example, is on an estate. So the key difference is that the estate is taxed in the U.S., meaning all the assets are taxed and then gets divvied up to the heirs. But in Japan, it's an inheritance tax. So the the heirs, the people who inherit the assets are the ones who have to pay the tax.
Speaker: So it's kind of like a pre-tax divvy up and then each person will pay proportional amount of tax, I guess a tax in proportion to the amount of assets they receive. So the way it's calculated is different.
Speaker: So if you are in in that example, if you were to pass the assets over to someone, you can't just necessarily prepare it on your end, have an estate and then just have the asset passed over. But you need to make sure that the person receiving the asset knows that they may have to file something in Japan to be able to claim their their um share on that that estate or the asset rather. Okay, let's add more detail to my example here. So I'm based in California. I bought this $100,000 spot in Beppu. actually have two daughters.
Speaker: Okay. Both those daughters are based in the United States and They really like the Japan house and, and you know, maybe someday 30 years from now, they they want to inherit it.
Speaker: So to my understanding here, let's say I get hit by a bus and my two daughters then get to inherit the property 50-50. Let's say they both want it. They would need to pay a tax, like inheritance tax ah to inherit that that property. Right.
Speaker: Right. And potentially there are some exclusions available. So there may not be any taxes due. But assuming that there is taxes due, yes, there there would need to be some taxes paid.
Speaker: But I guess the main maybe logistical issue, of course, is the location, you know, these daughters in California may not be able to speak Japanese as well. So there also needs to be coordination with professionals that can help these types of cases too.
Speaker: So there's a lot of consideration, not because, well, one is because the threshold of of the deduction is much lower, for example, than the US, the US right now has like 15 million dollars lifetime exclusion which is enormous right most people don't have to care about it uh about estate taxes but in japan the inheritance tax exclusion is 30 million yen plus 6 million yen per air so in this case the total exclusion is 30 million plus six times two so 12 million total of 42 million yen which is
Speaker: 200 something thousand three hundred thousand dollars right so and in in the grand scheme of things if the property value is higher then that exclusion might not be enough to cover the size of the estate so there might be some taxes due okay so let me break that down again inheritance uh exclusion in japan is up to 30 million yen which is 200 000 dollars And then per inheritor, there's a six million yen. Is that what you said?
Speaker: It's per heir. So they don't necessarily have to be the ones who end up inheriting the asset. So it's any statutory heir, meaning if there's, let's say, a wife and two daughters that survive, but only the daughters end up inheriting the asset, they'll still be able to use the total headcount of three.
Speaker: of three right but the two that actually received the assets will be the one paying any taxes so in this example again sorry i gotta keep re-trade re-backing my example i bought this house in bepu let's just say for example sake it was one million us dollars which translates to 150 million yen okay uh my two daughters let's say my wife does not want to inherit it but my two daughters want to inherit it someday How much do I expect my daughters to pay for this? There's a few quirky things about the Japanese inheritance tax. One is that real property has a different tax valuation. So, of course, things like cash, stocks, there's a fair market value. And I think for U.S., it's very easy to find fair market value of real estate.
Speaker: But in Japan, there's this whole system to calculate the tax assessed value property. a real property. Yeah. So that's the benefit of actually having property in Japan is that generally speaking, there could be a,
Speaker: like a 20, 30% discount from fair market value to the tax value. So in that example of let's say 150 million, the tax value could actually be something like, let's say, I don't know, like 100 million or 120 million, right? And then you deduct in this case, 30 million plus three times six, 18 million. So it's about a 48 million yen exclusion.
Speaker: The remaining amount, is the taxable amount. the The kind of interesting part about the Japanese inheritance tax calculation is that they assume that the statutory heirs receive the assets at the statutory rates, which I know this is just complete jargon, but what that basically means is that even though the wife did not want to inherit the asset or does not end up inheriting the asset,
Speaker: It assumes that she received her portion based off of the Japanese law. And the tax calculation is just based off of that. And okay before I get into the weeds, what that really means is that each individual gets to use their own tax bracket. And because the inheritance tax is at a marginal rate, meaning...
Speaker: you know the higher amount of assets you receive, the higher the tax rate. ah the the The highest tax rate actually is 55%, which a lot of people see as kind of like a headline. But really, this 55% tax rate only hits at assets received over 600 million yen, which is...
Speaker: roughly about 4 million US dollars at the moment, meaning each heir has to receive more than 4 million each before the highest tax rate hits. So a lot of times this 55% really is there for people to just kind of get click baited into like kind of getting, uh,
Speaker: they get a little bit of a misrepresentation that Japan has a really high inheritance tax rate. Okay, so going back to the tax assessed value. So I buy the property for 150 million yen, let's say 1 million US s dollars.
Speaker: The government sees that tax assessed value. Let's say I bought, and this is maybe unrealistic ah example, but I bought a 30 year old wooden house that's fully depreciated on a big, awesome piece of land.
Speaker: that's and that cost me 1.5 million are sorry 150 million yen 1 million us dollars the government could be like hey the the structure is fully depreciated i think this property is worth half or something like that is that realistic or the property the the building itself is based off of whatever tax assessed value it is for property tax purposes so it might not be zero even though it's zero in in reality but like the for the inheritance planning perspective that is the same number so whatever the property tax assessed value versus like is that the the same number for the building generally yes there are some exceptions but generally yes
Speaker: The land has a different completely different valuation method where there's a whole map that shows you the street value of whatever street that the the property is facing and then the the size of the plot and how it's allocated kind of determines the value of the land. The purchase price of the property is not necessarily the the like assessed value when inheritance triggers, right?
Speaker: Correct, correct. So there's generally like a 20, 30% discount from fair market value. Okay, so going back with my $1 million dollars example here, let's say bought it for 1 million after the the whatever quote unquote assessed inheritance value closer $700,000.
Speaker: right sure okay yeah and then from there you can imply that um exclusion which is again how much for let's say two children 48 million yen let's just say three 300 000. okay so we're we're down these the inheritance burden upon my two lovely makeup made up daughters is 400 000 us dollars in this case in total, which is then further divided into two. 200,000 each. Okay. How much should I expect my, actually fun fact, Ryan has twin daughters, my twin daughters to have to pay they're US taxpayers.
Speaker: Again, I know not not accounting advice, but just broad strokes. Like how much should they have ready? So this is where we have to actually have someone run the numbers, unfortunately. But again, just to go back to the the example before I lost you again, is that even though the the wife in this case, the surviving wife doesn't inherit anything,
Speaker: the for for purely for calculating taxes it assumes that uh the wife and the two daughters receive their portion based off of japanese law so in in japanese succession law wife and children split 50 50 and then the children further split 50 50. so yeah to add percentages it'll be 50 wife 25 daughter one 25 daughter two so the tax is calculated they divide the 400,000 up by that percentage. So a wife is taxed at 200,000 and then the daughters are taxed at $100,000 each.
Speaker: So whatever respective tax bracket that they fall in, the total amount of tax payable, is calculated based off of of that calculation. okay So the additional headcount does help because each person gets to use their their bracket. Even if mom doesn't inherit that amount?
Speaker: Correct. okay So it's purely for calculating the tax. So whatever the final number that comes up, so there's three total numbers that come up, you add that together okay I'm just going to make a number up. Let's say that number ends up being like 100,000. Yes. And then the daughters will then split that 50-50 because they received that So in this example, hypothetical example, it would be 50,000 each on a each acquisition do customers what Should customers make a will or something in Japan or does a US will or trust have kind of jurisdiction on ja Japanese properties?
Speaker: In Japan, I don't think the issue is going to arise as long as there's not that many significant assets that are held in Japan, or if the family structure, inheritance structure isn't complicated.
Speaker: A lot of times, if it's just a direct immediate family members inheriting, then maybe a will itself isn't necessary, but If your situation is a little bit more complex, then think having a Japan specific will could be helpful. Let's say I i die, you know, I have Akiyamart or some company in Japan as my tax representative who pays property tax. Japan is going to come to whoever, let's say Akiyamart in this case, and be like, hey, what's the deal with this property? You guys are responsible for paying property tax. And then we we notify that, hey, this person has passed. Or like, how would that work logistically?
Speaker: Yeah, good question. um Practically, I'm not sure if there's any streamlined process because ultimately each city or jurisdiction that has whatever rights over that property, they have their own process to figure out whether the owner has passed away or not.
Speaker: And maybe it's kind of difficult for the the city to know that the owner passed away if we're the tax representative, actually, because we continue to receive the bill. So they don't have a reason to investigate why this bill was not mailed or or things like that. I think a lot of times they figure out that the owner passed away because the mail is no longer deliverable.
Speaker: So that's one sign. But because it's a voluntary filing, the filing deadline, I believe is 10 months from the following the date of death.
Speaker: So you need to make that filing by then. so a lot of times it is more of a voluntary not voluntary, but you know, the the taxpayer, the heirs have to file themselves. So yeah, the city may never know actually that the the property owner has passed away. That's a whole separate topic. i want I'm curious, like who whose job in the city is it to know? like Well, it's it's a big social issue actually that a lot of... um Inherited properties aren't they're abandoned one. That's why we we we have this issue of of the nine million Aki is in Japan. and And two, a lot of times the heirs are either unknown or because they don't want to pay property taxes or go through the admin.
Speaker: the The title has not been changed. There's some new rules that basically force someone who inherited the property to change the title. when they receive the assets within a certain amount of time.
Speaker: So there are some new rules to watch out for, but a lot of times these apply to you know domestic cases. Before closing the loop on on this last example, again, let's say my my twin daughter example here, like as what would be prudent as an Acquia buyer, owner, let's say I just bought this $1 million dollar property, would it be prudent to like have a set of side fund for that inheritance? Do you see people do that or is just kind of like...
Speaker: They figure out when it comes. It would depend on the potential exposure to Japanese inheritance taxes. So if the only asset is a property and it's under the basic exemption, let's say under 30 million yen, then really no preparation is needed.
Speaker: If it's over that, then you need to start maybe running some more detailed numbers to see what the actual tax exposure may look like. And one quirk about the Japanese property or or Japanese inheritance tax in general is that i guess if the owner never lives in Japan, no issues because the only asset in Japan would be their property in Japan.
Speaker: However, if for whatever reason, the person who bought the property also wants to move to Japan, then they may end up pulling their entire worldwide assets into the Japanese tax system if they simply just die in Japan.
Speaker: So depending on like visa status, the the time spent in Japan, it it could become a huge issue. I'm thinking in the back of my head, most of our purchasers are, let's say, buying ski homes in Niigata that are are well below the the exemption amount, so $200,000.
Speaker: Is this pretty much a moot point? They don't really need to think about this in this case, for at least from a cost perspective for who inherits the property? For those cases, maybe it's it's very minor. The only real cost might just be to find a judicial scrivener or someone who can change the title of the property.
Speaker: We got that guy at the end. Yeah, if if that's the only asset and the only tie to Japan, then yeah really really ah minor point minor detail okay i also want to go back actually to the the akia problem here so a lot of domestic folks let's say mariko in tokyo has her father pass away somewhere down in fukuoka and has a property that's inherited to her so A lot of people are concerned about paying that inheritance tax and are just like the reason the new law came in is because they were saying like they were just avoiding the tax. Is that right? think they just didn't want to own the property. they They're not interested. Maybe they didn't want to disinherit because they still want other assets that her father may have left, you know, like cash or securities. So but she just didn't want the property. Right. So maybe she just decided to not change the title. And if she doesn't change the title, then the the tax, the fixed asset tax, the property tax,
Speaker: you know she doesn't she's technically not liable for it ah because legally she doesn't own the property. So I think there's just some people who don't want to pay the cost of trying to demolish the property or sell the property or pay the upkeep. So and it just happens to be in limbo. So let's say Mariko's dad had $200,000 in cash.
Speaker: And so that would use up the exemption and anything above that. In this case, the Fukuoka Akiya would just be taxed at that inheritance tax rate, right?
Speaker: Right, right. So she may may just not want to pay the tax to transfer that property. And the new law that came in, could say that again, so they they're starting to go after these people either way if it like they are the heirs.
Speaker: Right. if If someone were to inherit the property, then they need to update the title on the property. ah so so that it reflects that the change in ownership. So they're trying to make sure that there's no property that are unaccounted for that are owned by deceased individuals. I never really thought about this till recently, but I know we have questions.
Speaker: Another alternative is we have a couple of customers buy via an LLC, our business. How does that look like from an inheritance perspective? If it's a foreign LLC, then it's really easy because then the asset itself is not the property anymore.
Speaker: But the heirs would likely receive ownership in the LLC, which if it's offshore, it's simply an overseas transaction. They don't even need to change the title because the same LLC owns the property.
Speaker: So having it under the company or corporate structure, that's the easy part is that you don't need to do anything with the title. You simply have to just change ownership of the company, whether it be Japanese or foreign.
Speaker: The only issue is if it's a Japanese company like a GKKK, Then, of course, there's depending on the value of of that company or the property that it owns, you may need to file a Japanese inheritance tax return.
Speaker: Okay, bringing back that that US example, I bought this 1 million us dollar property under my I love not to LLC. I pass away. My two daughters are going to inherit that LLC. I love not to LLC in the US. So you're saying no, nothing changes, basically. They just are on the hook for paying property tax, obviously. Right.
Speaker: Nothing. Because i love not to LLC is the owner. Okay. And. That's it. So the property itself, the owner of the property itself hasn't changed. It's the owner of the LLC that has changed. Okay. That's that's sounding smarter.
Speaker: ah Is there any negatives behind that, you think? I don't know if it's a negative, but you know you're obviously adding an extra layer. So you just have to have small, maybe maintenance costs to keep the LLC, accounting, tax filing in in the home country. So administratively,
Speaker: There's a kind of a break-even point, right, of it making sense. So if the property value is is low, then maybe just having the LLC solely to buy a low-value Akia may not be worth it.
Speaker: But if you already have other assets, it is easier to divvy up shares and LLCs. So the issue with real estate is, you know, real estate is you have to change the title every time you you change ownership. And it's hard to give partial ownership of property to people. it's not impossible, but it's very difficult. So a lot of times if you, let's say own maybe multiple properties, it's much easier to divide the ownership of those properties through a LLC share transfer rather than giving each owner, new owner, small portions of, of shares of each property. For every listener who's like, hey, I want to buy a Nokia and like, oh, maybe I should use an LLC.
Speaker: From the purchase process and getting like the power attorney and the affidavit, all that kind of stuff, it adds a little bit of complexity, to be honest. But, you know, now actually talk after talking to you, Ryan, I think for the right person, if the a amount is high enough,
Speaker: anything above 200k US. This might be, I think, a time where it's, correct me if I'm wrong, like a tax advantage type strategy to purchase a property in Japan for inheritance purposes, right? Hugely advantageous. You know, you basically have no asset in Japan If you buy through an LLC that's over overseas, effectively, you have no connection to Japan.
Speaker: But the tax representative, so again, for most of our customers who are purchasing, we we have a way to kind of be your tax representative, pay your property taxes, stuff like that. We, in this case, are on the hook, potentially.
Speaker: The authorities in Japan have no other way of of reaching out to someone. So we're not necessarily going to be liable for the tax itself, but we're more of the messenger. So but we We are responsible to communicate to the heirs. So maybe in that in in that regard.
Speaker: That's interesting. Okay. And since we deal with customers all over the world, let's say we have a customer in, i don't know, Montenegro for some reason. We are we we have to deal with the Montenegrin laws for inheritance at that point. Potentially, you know, a lot of these succession rules depend on the nationality of the person and also where someone resides. So there are a lot of factors that could easily complicate the the conversation. So yes, seek professional advice, ideally before anything happens. But worst case, you know, hopefully we can be the right
Speaker: source of, or right resource rather to, to help you find the right professional. Everything we're saying here is grain of salt. This is part discussion versus your like formal advice. I usually like to give the overview because a lot of times, you know, the excitement kind of goes first and you're like, yes, I want to buy this property and you get really excited. But for me, it's not trying to, to to be the buzzkill or anything, but it's like, okay, you know, but you are aware of these commitments that you're making and the complexities that you're adding to your life. So I just want to make sure that the excitement doesn't go take you across the line and then you realize later that all these kind of issues are there. So obviously it's better to be able to know these things beforehand so that not only yourself, but you know your family is aware of of what they might have to deal with in the future.
Speaker: Okay, cool. So kind of wrap up the conversation here. In my mind, there's like two, there's a couple points where you have to start thinking about this more seriously. So first off, if the property is well above 200,000 US dollars or 30 million Japanese yen, that's one of the triggers that you should definitely start being like, okay, let me think about inheritance. Is that right, Ryan? Or do you think about it?
Speaker: Correct. Higher or lower? That's right. Okay. So 200K US is kind of, that's the that's the business manager visa actually at this point price. Okay, so that's when it triggers. If you're buying an Aki or buying a property below that, inheritance becomes a much simpler issue. It's more, if I'm reading this correctly, it's more of just a discussion between you and your loved ones on how what's the plan with this property, right?
Speaker: Correct. And the only caveat to that is that if you don't intend on moving to Japan, once you... decide to be physically in Japan and living in in Japan, then potentially there's more complications. Ryan, any any final pieces of advice for someone who, again, is looking to buy, has already bought from your perspective of a long-term kind of inheritance or financial situation? What are some things they should be thinking about or any advice you have?
Speaker: ah Just thinking about these things is is the first step. So by listening to this podcast and just being aware that these issues might come up because it's not time sensitive, right? A lot of our you know buyers aren't necessarily on their way out of life.
Speaker: So these things kind of go in the back burner. a lot of times it is important, but it's not time sensitive. But when you have a moment, it's good to just sit down and just look at all the things that you've you've committed to in life and just make sure that you have a plan for how to deal with these things ah should anything come up. Life throws lot of different things at you. And of course, you can't get to it right away. But I think at some point, it's good to just force yourself to know sit down and and have a conversation with yourself first and then find the right resources to address some of the the key concerns that you you may run into in the future.
Speaker: I think as we discussed, it this is obviously an important discussion. for our current If you're currently one of our AkiMart direct customers who are going through the purchase process, shoot us a message if you know you think a a chat with Ryan would be helpful. Sorry, Ryan, to throw you this curveball here. But we we think these are important things to have conversations about during the purchase process that we're thinking about.
Speaker: kind of integrating it with the the program um so yeah shoot us an email at podcast at akia-mart.com if you're current part of currently part of our akia mart direct purchasing program and we'll see if we can get to set you up with ryan to kind of just walk through and for him to give you some general advice and lay of the lands specifically with your property in japan that cool with you ryan Yeah, of course. And if you are even thinking about moving to Japan, you know it's even more important to to have this conversation. So if you already bought a property and then already in Japan, just reach out to us ASAP.
Speaker: Thank you, Ryan. I look forward to having you on again, hopefully in Tama or sometime soon. It's always great to to have you on. You bring a financial lens onto me and Joey's craziness and and what we're building.
Speaker: Appreciate it. Yeah, well, it's good. A lot of times, you know, you you go where life takes you. And and I'm just one of the ah many components that just help you deal with all these crazy, crazy things that that you get yourself into. So, yeah, there's always a solution. And you just have to be patient enough to find the right person to be able to help you.
Speaker: Awesome, man. Well, thanks so much. Really appreciate it. Thanks for having me, man.
Speaker: Thanks for listening to this week's episode of Buying a House in Japan. If you find the show helpful or at least entertaining, give us a five-star rating. Takes five seconds and really goes a long way. If you or someone you know is looking for a Japanese home, check out Akiyamart.com, our English-friendly site that lets you browse over half a million listings. That's A-K-I-Y-A-M-A-R-T.com to find your dream home in Japan. If you've got questions or feedback, drop us a line, email contact at akiyamart.com. You can also find us on Instagram as well as TikTok, where we post properties, tips on the home buying process, and updates on our own purchases and renovations. Thanks again for listening, and we'll see you next week.
