What is the tax-free holding period for NISA, and what happens to the assets upon its expiration?

Hello! The NISA holding period and what happens after its expiry are indeed common concerns, especially with the significant rule changes introduced by the new NISA in 2024. Let me break it down for you.

Simply put, you need to distinguish between Old NISA (up to 2023) and New NISA (from 2024 onwards), as their rules are entirely different.

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How long is the NISA tax-exempt holding period?

New NISA (Starting 2024)

Good news! From 2024, the tax-exempt holding period for the new NISA is permanent (無期限).

• This applies to both the Growth Investment Frame (成長投資枠) and the Tsumitate Investment Frame (つみたて投資枠).
• This means that as long as your assets remain in your new NISA account, any gains generated during that period (dividends, distributions, or capital gains from selling) are permanently tax-exempt, regardless of how long you hold them. You can think of it as a "tax-free savings pot"; as long as you don't sell the assets, you don't have to worry about time limits.

Old NISA (Up to 2023)

If you started using NISA in 2023 or earlier, you were under the old system, which had time limits.

• General NISA (一般NISA): The tax-exempt period was 5 years.
• Tsumitate NISA (つみたてNISA): The tax-exempt period was 20 years.

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What happens to assets after expiry?

This question primarily applies to Old NISA, as the new NISA has no concept of "expiry."

When the 5-year or 20-year tax-exempt period for assets in your old NISA account ends, you have the following options:

1. Transfer to a taxable account (課税口座へ移管)

This is the most common handling method. Once the tax-exempt period expires, your securities firm will automatically transfer these assets (stocks, funds, etc.) to a regular, taxable account (what we call a "taxable account" or "課税口座").

• Key point: Upon transfer, the asset's "acquisition cost" will be recalculated based on the market price on the day of transfer.
• For example:
  • Five years ago, you bought a fund for 1 million JPY in your General NISA.
  • When it expired five years later, the fund's value had risen to 1.5 million JPY.
  • When it's transferred to a taxable account, its "new acquisition cost" becomes 1.5 million JPY.
  • If you later sell it for 1.6 million JPY, the taxable profit will only be 100,000 JPY (1.6 million - 1.5 million), not 600,000 JPY (1.6 million - 1 million).
  • Conversely, if it dropped to 800,000 JPY at the time of transfer, the new cost basis would be 800,000 JPY. Any subsequent loss upon selling would not be tax-deductible.

2. Sell (売却)

You can sell the assets at any time before the end of the tax-exempt period. Since the transaction occurs within the tax-exempt period, any profit you make is 100% tax-exempt. This is the simplest and most direct method.

3. Rollover (ロールオーバー) - [This option is now historical]

Under the old NISA system, you could choose to "rollover" assets expiring after 5 years into the next year's new tax-exempt allowance, thereby extending the tax-exempt period.

• However, please note: Assets from Old NISA cannot be rolled over into New NISA. Therefore, the end of 2023 was the last opportunity for a Rollover (a transitional arrangement for rolling over 2019 allocations into 2024). This option is largely irrelevant now.

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To summarize

I hope this explanation helps! In short, starting with the new NISA now is much more straightforward; you can buy and hold assets indefinitely without worrying about expiry.