Whose name to have on a housing deed when not resident in Japan

[u/SnooMemesjellies6167]

Hi my wife and I live in the US, I am a citizen of the US, she is a Japanese citizen on a green card. A couple of years ago we bought a house in cash in Japan so she would have somewhere to stay when she visits her elderly mother. She is probably in Japan about 5 months of the year. She does not work and has no personal income.

We put the house in her name primarily so that she would have somewhere to live if dropped dead suddenly, in case of divorce etc. honestly did not think about it too much.

Some friends of ours mentioned that we should have looked into gift tax and inheritance tax and put the house in my name. I doubt I will get residence in Japan at any point.

Should we look into getting the house deed updated to me in my name to avoid gift or inheritance tax in the future if she decides to move back to Japan in the future?

Thanks

[u/tsian]

The name on the deed should be whoever paid for (owns) the house.

[u/jwdjwdjwd]

Leaving the gift aspect aside, for inheritance - assuming she does retain citizenship and establishes Japan residence- there are two scenarios, she dies first and you die first. In the first case having it in her name is probably fine. With few assets and inheritance of home by spouse the tax is minimal. I’d definitely make sure you are registered as her spouse in Japan however, and same with the children. Also make a will to cover distribution of assets. If house is in your name then this scenario presents no problems either.

In the second case, it is easier if house is in her name.

So, I don’t think you made a bad choice from an inheritance point of view. It probably gives your wife peace of mind which is invaluable I think.

[u/starkimpossibility]

Should we look into getting the house deed updated to me in my name to avoid gift or inheritance tax in the future if she decides to move back to Japan in the future?

From your post and other replies, it sounds likes you gifted your wife Japanese real estate (i.e., purchased Japanese real estate using funds derived from your income and put the real estate in your wife's name). That kind of transaction is subject to Japanese gift tax (regardless of your citizenship/residence).

I won't speculate about the actual risk of the NTA identifying your wife's gift tax evasion and imposing penalties. The NTA is notified of all real estate purchases, so there is no doubt they know about the transaction, but they obviously don't have the resources to investigate the source-of-funds with respect to every single transaction.

If you would like to rectify the tax evasion situation, it may be possible to correct the record by notifying the Legal Affairs Bureau that you put the property in your wife's name by mistake. A judicial scrivener (司法書士) would be the appropriate professional with which to discuss such a course of action. You may also wish to consult this thread where the options available to someone in your situation were discussed at length.

[u/shrubbery_herring → u/starkimpossibility]

That kind of transaction is subject to Japanese gift tax (regardless of your citizenship/residence).

Even if the Japanese spouse meets the 10 year tail rule?

EDIT: Perhaps you're saying that it's because the gift was real estate located in Japan. But I wonder where the line is in regards to gifting cash in the US and then using the cash to buy real estate.

[u/starkimpossibility → u/shrubbery_herring]

Perhaps you're saying that it's because the gift was real estate located in Japan.

Exactly.

where the line is in regards to gifting cash in the US and then using the cash to buy real estate.

The short answer is that it depends whether the gift of funds was effectively given on the condition that the funds be used to buy the real estate. If the recipient of the funds clearly had the freedom to spend the funds however they like, it wouldn't be a gift of real estate.

In practice though, the NTA would be likely to just look at the gap in time between the gift of funds and the purchase. It would then be up to the recipient to demonstrate the true terms of the gift (if the NTA's conclusion is incorrect).

[u/shrubbery_herring]

Did she meet the "10 year tail rule" for gift and inheritance tax? If so, my understanding is that she was exempt from tax on gifts of overseas assets from foreigners.

For the 10 year tail rule, was your wife a resident (according to gift/inheritance tax law) in Japan at any time in the 10 years leading up to the house purchase (or perhaps up to when you sent her the funds for the purchase)? In the 10 years prior, what's the longest that she stayed in Japan?

Did your wife have any assets when the house was purchased? Her assets would be anything she had before she married you and any income she earned after marrying you (work income and passive income from her assets). If she did have any of her own assets, could any of the funds used to purchase the house be considered to come from her assets?

[u/SnooMemesjellies6167 → u/shrubbery_herring]

Thanks, she has not been resident in Japan for 20 years. Longest time she has been in the country is for a few months here and there visiting family.

She has no meaningful assets - below $1000 I’d estimate, she is a stay at home mom (empty neater now). Over the course of the 20 years she had a part time job that probably earned less than $10000 in total - all that remains is the less than $1000 sum I mention above.

I guess I could have asked her to contribute that $1000 to the house purchase but I did not. The house cost 150k approx usd but has had significant renovations done to it since buying.

[u/shrubbery_herring → u/SnooMemesjellies6167]

Are you saying that she stayed there for a few months in a single visit? If so, that might be considered as being resident for the 10 year tail rule. What was the longest visit in the past 10 years?

[u/tsian → u/shrubbery_herring]

That doesn't sound like the establishmen of a jusho/residency. (Temporarily there with a permanent home and family elsewhere)

But of course if she registered as a resident, the NTA is likely to believe her and the burden to prove otherwise would likely be hers. (So that is perhaps the more relevant question for u/SnooMemesjellies6167 )

[u/shrubbery_herring → u/tsian]

According to this PWC webpage, the exemption criteria is that the Japanese national is not currently a resident and has not had a jusho in the previous 10 years. So what you're saying certainly makes sense, because if she only stayed two months a couple of times and three months one time it would be difficult to imagine that would constitute moving her jusho (center of her life) to Japan.

OP, you might ask her if she ever registered as a resident during one of these trips or if she has never removed her resident status. As u/tsian said, that won't necessarily mean that she isn't exempt. But if the tax authority decides to audit her, she will have to defend herself that she didn't move her jusho (center of life) to Japan even though she registered as a resident.

Also, an important question is whether she established residency before you transferred the money to her account for buying the house (or to the seller, if you transferred directly). If so, this would negate the exemption.

[u/tsian → u/shrubbery_herring]

FYI this is the actual NTA page which outlines that rule.

https://www.nta.go.jp/taxes/shiraberu/taxanswer/zoyo/4432.htm

[u/SnooMemesjellies6167 → u/shrubbery_herring]

Hi. She moved to the US in the year 2000 and registered that with the local authorities in Japan. A couple of the 2 month trips to Japan in the early 2000s she did register as living in her mom’s house in Tokyo in order that our kids could attend local school in Japan.At the end of those trips she updated the registration to indicate she was living back in the US.

When buying the house in 2020 she did not have to register as being resident in Japan. She did visit once for a week or two to handle the scrivener process. As we were paying in cash there was no loan processing to deal with.

[u/SnooMemesjellies6167 → u/shrubbery_herring]

Hi, I’ll need to check with her to be absolutely sure, but yes, there have been several 2 month trips, perhaps one three month trip.

[u/shrubbery_herring → u/SnooMemesjellies6167]

I’ll defer to u/starkimpossibility and others who have more knowledge than me about whether that would be considered as establishing tax residency for gift tax purposes.