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Inheritance in Japan

Practical Issues
kenpoken
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Inheritance in Japan

#219513

Postby kenpoken » May 4th, 2019, 1:49 pm

Hello everyone

My wife and I would appreciate your advice:

Background
I am a British citizen.
My wife is a Japanese citizen.
My wife has lived in the UK since 2010.
We both file UK tax returns every year.
My wife has never taken any steps to claim UK "domicile", so we assume that she is not "domiciled" in the UK (but not sure)

In the 2018-2019 tax year, my wife inherited some money in Japan from her late mother (all amounts converted from JPY into £ for the purposes of this post):
Gross amount inherited: £ 155,270
Lawyer fees: £ 13,130
Tax accountant fees: £ 1,940
Inheritance tax paid in Japan £ 11,080
Net amount received by my wife: £ 129,120

The net amount remains in my wife's bank account in Japan.
My wife plans to leave it there and use it when we are there on holiday (or possibly in the future use it towards buying an apartment to stay in during holidays, instead of paying for hotels). i.e. she has no intention of bringing the funds into the UK.

Given all the above, our questions are:
(1) Is inheritance tax also due in the UK?
(2) Should this inheritance be included in some way on my wife's UK tax return?
(3) Is there any requirement to inform HMRC of the inheritance?

Many thanks in advance for any help!
Ken

GoSeigen
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Re: Inheritance in Japan

#219528

Postby GoSeigen » May 4th, 2019, 3:27 pm

Inheritance tax liability is determined from the domicile of the deceased, not the beneficiaries. Assuming your mother-in-law always lived in Japan I don't think your wife will have anything to declare or pay.

However, be aware that as a UK taxpayer she will need to declare future income and capital gains arising from those assets she holds abroad. You will want to check for yourself, but IIRC there are allowances for small amounts of interest and dividend income but above those limits she will be required to complete an annual self-assessment including the "foreign" pages -- even if there is no tax to pay after doing the calculations.


GS

scotia
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Re: Inheritance in Japan

#219597

Postby scotia » May 4th, 2019, 10:38 pm

Following on from Goseigen's post with which I agree - Even if the deceased had been a UK citizen (which she was not), there is no UK inheritance tax to pay if the value of the estate is below £325,000.
As an aside - that was an expensive lawyer - 8.4% of the estate value?

kenpoken
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Re: Inheritance in Japan

#219610

Postby kenpoken » May 5th, 2019, 7:42 am

Many thanks GoSeigen and Scotia for your replies.

Just to respond to your points:

- yes, my mother-in-law always lived in Japan
- thanks, yes, we are aware that my wife will need to declare (in her UK tax return) future income/capital gains arising from the funds she inherited
- the value of my mother-in-law's estate was higher than the £325,000 (the estate was shared between my wife and her siblings)
- yes, sadly a lawyer was needed because my brother-in-law coerced his mother into leaving almost all of the estate to him. My wife and her sister needed a lawyer to claim the share of the estate to which they are entitled under Japanese law (irrespective of the Will)

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Re: Inheritance in Japan

#219634

Postby PinkDalek » May 5th, 2019, 11:03 am

kenpoken wrote:- thanks, yes, we are aware that my wife will need to declare (in her UK tax return) future income/capital gains arising from the funds she inherited


That might (emphasis and see ***) depend on the remittance basis (I'm not an expert and will leave it to others to thrash out the detail).

She may also, as a UK resident, need to declare Taxable Income arising in the Estate and passed on to her but how that impacts on your wife I don't know (if such income/gains are not remitted to the UK).

See the Yes/No in Box 6 here https://assets.publishing.service.gov.u ... 0_2019.pdf and Boxes 22 onwards here https://assets.publishing.service.gov.u ... 7_2019.pdf

The HMRC Guidance notes for the latter may be found on Page TN 3 here:

https://assets.publishing.service.gov.u ... s_2019.pdf which commences (my bold):

Income from foreign estates

You will need to fill in boxes 22 and 23 if the estate has foreign income, and either:

• the personal representatives are not resident in the UK

the deceased person was not domiciled in the UK when they died ...


Further legal fees may be required to obtain that information (and possibly even an R185 from the personal representatives)!

- the value of my mother-in-law's estate was higher than the £325,000 (the estate was shared between my wife and her siblings)


That is not relevant in that the mother-in-law was not UK Domiciled and her Estate was not subject to UK Inheritance Tax.

*** My wife has never taken any steps to claim UK "domicile", so we assume that she is not "domiciled" in the UK (but not sure)


That raises other issues.

Here is basic Guidance https://www.gov.uk/tax-foreign-income and leads to this https://www.gov.uk/government/publicati ... basis-rdr1 which may need studying in great detail, as well as https://www.gov.uk/hmrc-internal-manual ... /rdrm22310 onwards re Domicile of choice.

kenpoken
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Re: Inheritance in Japan

#219694

Postby kenpoken » May 5th, 2019, 6:46 pm

Many thanks PinkDalek for your comments and links.

Some further background from me:

- until now, my wife has had no income except her UK income, so there has been no need to use the remittance basis
- as of now, the money she inherited is sitting in a bank account in Japan earning literally a few pounds of interest per year, so she plans to declare this income on her UK tax return (so again, no need to use the remittance basis)
- reading your links, she might well be regarded as having domicile in the UK (if not now, then in the future) but to be honest this is not a problem for us, because (other than this inheritance) all her assets and income are in the UK. In fact, in the event of my death, she would benefit from being UK domiciled because it would give her spousal exemption from IHT on my assets

Given all this - and the earlier replies from other posters - I assume that there is nothing more to declare in the UK in regards to my wife's inheritance in Japan. Is this correct?

However, I am not sure of the meaning of "Taxable income arising in the estate". Please could you help me understand what this means?

Just to be clear, my wife inherited the lump sum (£ 129k net of fees and Japanese inheritance tax) and has not received any other money/income in regards to her mother's death.

Thanks for any further guidance you can give me
Ken

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Re: Inheritance in Japan

#219754

Postby DrBunsenHoneydew » May 6th, 2019, 11:54 am

kenpoken wrote:Many thanks PinkDalek for your comments and links.

Some further background from me:

- until now, my wife has had no income except her UK income, so there has been no need to use the remittance basis
- as of now, the money she inherited is sitting in a bank account in Japan earning literally a few pounds of interest per year, so she plans to declare this income on her UK tax return (so again, no need to use the remittance basis)
- reading your links, she might well be regarded as having domicile in the UK (if not now, then in the future) but to be honest this is not a problem for us, because (other than this inheritance) all her assets and income are in the UK. In fact, in the event of my death, she would benefit from being UK domiciled because it would give her spousal exemption from IHT on my assets

Given all this - and the earlier replies from other posters - I assume that there is nothing more to declare in the UK in regards to my wife's inheritance in Japan. Is this correct?

However, I am not sure of the meaning of "Taxable income arising in the estate". Please could you help me understand what this means?

Just to be clear, my wife inherited the lump sum (£ 129k net of fees and Japanese inheritance tax) and has not received any other money/income in regards to her mother's death.

Thanks for any further guidance you can give me
Ken

Re: "Taxable income arising in the estate"
This is about the time period between the date of death (at which point the Estate came into being and you became entitled to the share of assets under the Will or Intestacy rules) and the date when you actually received the money from the "Executor". In that window the assets will have received interest, dividends, etc. HMRC would like to tax this "income arising in the Estate". If no Tax has been paid in Japan your wife is liable for it on her share. If Japanese tax will have been paid by the Executor before the final proceeds have been distributed, she'll still be UK-liable but can likely claim a double taxation relief somehow. See Article 26A in https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/519813/Japan_UK_Double_Taxation_Agreement_amended_by_2013_protocol.pdf

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Re: Inheritance in Japan

#219758

Postby PinkDalek » May 6th, 2019, 12:22 pm

DrBunsenHoneydew wrote:Re: "Taxable income arising in the estate"
This is about the time period between the date of death (at which point the Estate came into being and you became entitled to the share of assets under the Will or Intestacy rules) and the date when you actually received the money from the "Executor". In that window the assets will have received interest, dividends, etc. HMRC would like to tax this "income arising in the Estate". If no Tax has been paid in Japan your wife is liable for it on her share. If Japanese tax will have been paid by the Executor before the final proceeds have been distributed, she'll still be UK-liable but can likely claim a double taxation relief somehow. See Article 26A in https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/519813/Japan_UK_Double_Taxation_Agreement_amended_by_2013_protocol.pdf


Yes but can the Remittance basis be applied to such income (I have no idea)? Thus my earlier She may also, as a UK resident, need to declare Taxable Income arising in the Estate and passed on to her but how that impacts on your wife I don't know (if such income/gains are not remitted to the UK).

https://www.gov.uk/government/publicati ... basis-2019

The OP's wife would not appear, as yet, to be deemed domicile in the UK but how ^^^ Domicile of Choice ^^^ falls into this scenario I don't know.

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Re: Inheritance in Japan

#219825

Postby kenpoken » May 6th, 2019, 7:18 pm

Thank you DrBunsenHoneydew and PinkDalek for your replies

I now understand the meaning of "Taxable income arising in the estate".

I will explain more details of how my wife received her share of the estate:

- the estate consists almost entirely of land
- my brother-in-law wanted to keep all the land intact, so he offered to pay my wife and her sister's share of the estate in cash from his own funds (rather than selling part of the land); this is fairly common in Japan
- my wife and sister then paid Japanese inheritance tax on the money they received
- I don't believe that the estate received any income from the land between the date of death and payment of my wife's share

As I mentioned, this arrangement is quite common in Japan. Does it present any complications in terms of my wife's UK tax obligations?

Thanks again!
Ken

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Re: Inheritance in Japan

#220016

Postby telemark15 » May 7th, 2019, 3:53 pm

For someone who is once non UK domiciled, she does not need to declare overseas income if it is < £2000/year and is left overseas.
This rule apply even when she become deemed domiciled in the UK due to long duration of UK residence. :D

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Re: Inheritance in Japan

#220017

Postby PinkDalek » May 7th, 2019, 4:02 pm

Welcome to TLF.

telemark15 wrote:For someone who is once non UK domiciled, she does not need to declare overseas income if it is < £2000/year and is left overseas.
This rule apply even when she become deemed domiciled in the UK due to long duration of UK residence. :D


You can’t use the remittance basis if you’re deemed domiciled under the changes brought in from 6 April 2017.

https://www.gov.uk/government/publicati ... f-taxation

Not that deemed domicile applies to the OP's wife at present.


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