When buying real estate in Japan you will need to decide whether to own the property fully in your own name, or jointly with a spouse or partner. The share of ownership will be recorded on the property title. With sole ownership, selling the property in the future can be very simple, whereas selling a property with joint ownership will require all parties to agree to the sale.
It is very important to consider the ratio of ownership, as mistakenly adding the wrong ratio could result in a tax bill for one or both parties. The ownership ratio must accurately reflect the share of the funds that each party contributed to the purchase of the property. You cannot simply decide to have a 50/50 share if one party only contributed 1% to the purchase because the tax office would consider it to be a gift and the recipient would be liable to pay gift tax.
How to decide the share of ownership:
Funds contributed (including loan amount) ÷ Property purchase costs*
= Ownership share
The property purchase costs include the actual purchase price plus the various fees and taxes associated with the purchase. Examples include the following:
- Real estate acquisition tax
- Real estate registration tax
- Real estate brokerage fees
- Mortgage registration tax
- Stamp tax
- Pro-rated fixed asset and city taxes
- Fees to demolish and build a new house
- Renovations or extensions
- Adding air-conditioners or hot water systems to the property
The following expenditures cannot be included as purchase costs:
- Fire and earthquake insurance premiums
- Setting up internet and cable television
- Lump-sum repair reserve fund and maintenance fund payments
- Moving costs
- Furniture, electronics etc.
Annual basic deduction:
There is an annual gift tax basic deduction of 1,100,000 Yen that is not taxable. If the gift value or the ownership share transferred to the other party is valued over this amount, the recipient may be liable to pay gift tax.
Tax-free gift amount for spouse:
If you are buying your primary residence, you may be able to provide up to 21,100,000 Yen (20,000,000 Yen + 1,100,000 Yen deduction) to your spouse for the purchase. Anything over this amount will be subject to gift tax. To qualify, you must have been legally married for over 20 years, you can only use the deduction once in your lifetime, and the deduction must be declared in your end-of-year tax filing.
Financial assistance from parents:
Some parents may provide money to their children towards the purchase of a home. The maximum tax free gift amount can be as high as 55 million Yen, provided that several requirements are met.
Funds over the exempted amount may be considered gifts and gift tax may be applied.
Loans from parents may be exempt from gift tax, provided that requirements are met.
Changing the ownership share after purchase:
It may be possible to add joint owners or change the ownership ratio after purchase. Please contact a judicial scrivener to register the change.
Gift tax rates:
|*Over the age of 20 and gift received
from parents or grandparents:
|* All other recipients:|
|Taxable Amount||Tax Rate||Deduction||Taxable Amount||Tax Rate||Deduction|
|< ¥2,000,000||10%||–||< ¥2,000,000||10%||–|
|< ¥4,000,000||15%||¥100,000||< ¥3,000,000||15%||¥100,000|
|< ¥6,000,000||20%||¥300,000||< ¥4,000,000||20%||¥250,000|
|< ¥10,000,000||30%||¥900,000||< ¥6,000,000||30%||¥650,000|
|< ¥15,000,000||40%||¥1,900,000||< ¥10,000,000||40%||¥1,250,000|
|< ¥30,000,000||45%||¥2,650,000||< ¥15,000,000||45%||¥1,750,000|
|< ¥45,000,000||50%||¥4,150,000||< ¥30,000,000||50%||¥2,500,000|
|¥45,000,000 +||55%||¥6,400,000||¥30,000,000 +||55%||¥4,000,000|
Example of gift tax amount:
5,000,000 Yen gift (not from parents or grandparents):
[5,000,000 Yen – 1,100,000 Yen deduction] x 20% – 250,000 Yen = 530,000 Yen gift tax
What if you are gifted real estate?
The tax value of the real estate will be based on the rosenka value of the property. The rosenka value is provided by the National Tax Agency and is generally lower than actual market prices. It is also used for calculating inheritance taxes.
The information contained on this page is intended as a general guide only and is not investment, taxation or financial advice. Readers are strongly advised to contact specialists both in Japan and in their home country to obtain accurate information before making any decision. For details on adding or changing the ownership share of real estate, please contact a judicial scrivener. For details on gift tax, please contact a qualified tax accountant.