Can assets held in a NISA account be inherited?

Okay, let me clarify the issue of asset inheritance within NISA accounts for you.

Can assets in a NISA account be inherited?

Let's start with the conclusion: Yes, assets can be inherited, but there are important rules you need to be aware of.

Simply put, when a NISA account holder passes away, the stocks, funds, and other assets in their account can be inherited by their beneficiaries. However, the NISA tax-exemption privilege cannot be inherited along with them.

Let me use a real-life example to help you understand.

How does inheritance work?

You can think of a NISA account as a special "tax-free shopping basket." Any money earned from buying things (investing) in this basket is tax-exempt.

1. When the person is gone, the contents of the basket go to the heir.

   • When the account holder passes away, all the contents of this "shopping basket" (stocks, funds, etc.) will be taken out and transferred to the beneficiary.

2. The "tax-free shopping basket" itself cannot be used by others.

   • The beneficiary only receives the "contents," but not the "tax-free shopping basket" itself.
   • These inherited assets will be transferred to the beneficiary's own regular brokerage account (i.e., a taxable account, such as a "Tokutei Koza" (Specific Account) or "Ippan Koza" (General Account)). They cannot be placed into the beneficiary's own NISA account.

3. The asset price will be "reset."

   • This point is very important! When assets are transferred to the beneficiary, they are valued at the market price on the day of transfer. This price then becomes the beneficiary's "new cost basis" for these assets.

   • For example:

     • Suppose your father bought a stock in his NISA account for 1 million JPY.
     • When he passed away, the stock had risen to 1.5 million JPY. The 500,000 JPY gain was tax-exempt during his lifetime.
     • As the beneficiary, you inherit this stock. It will be transferred to your regular taxable account, and your "purchase cost" will be recorded as 1.5 million JPY.
     • In the future, if you sell this stock for 1.6 million JPY, your taxable profit will only be 100,000 JPY (1.6 million - 1.5 million), not calculated from the initial 1 million JPY.

Don't forget about "Inheritance Tax"

While investment gains within a NISA account are exempt from capital gains tax, all assets within the account itself are still part of the deceased's estate.

• This means that these assets (valued at their market price on the day of death) must be included in the total estate value, which may incur inheritance tax.
• Inheritance tax and investment income tax are two different things; don't confuse them.

What to do if inheritance occurs?

1. Contact the Financial Institution: First, the beneficiary needs to promptly contact the securities firm or bank where the deceased held the account.
2. Submit Supporting Documents: Typically, you will need to submit documents such as a death certificate, a family register transcript (to prove the inheritance relationship), and the beneficiary's own identification.
3. Complete Transfer Procedures: The financial institution will guide you through the subsequent asset transfer procedures to move the assets from the deceased's NISA account to your regular taxable account.

To summarize:

• Can it be inherited? -> Yes, the stocks and funds within it can be inherited.
• Can the NISA tax benefit be inherited? -> No, the assets will be transferred to a regular taxable account.
• Will I pay tax if I sell after inheriting? -> Potentially, yes. Tax is only calculated on the difference between the asset's price at the moment you inherited it (the new cost basis) and its future selling price.
• Is there inheritance tax? -> Yes, NISA assets are part of the estate and must be included in the total amount for inheritance tax calculation.

I hope this explanation helps you! Overall, there's no need to worry about the assets disappearing; it's just that the handling process is different from regular bank deposits.