Estate Tax

Credits to the owner of the image.

Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition. It is not a tax on property. It is a tax imposed on the privilege of transmitting property upon the death of the owner. The Estate Tax is based on the laws in force at the time of death notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary.

Frequently Asked Questions

1.   Who are required to file the Estate Tax return?

a)   The executor or administrator or any of the legal heirs of the decedent or non-resident of the Philippines under any of the following situation:

-  In all cases of transfer subject to Estate Tax;

-  Where though exempt from Estate Tax, the gross value of the estate exceeds two hundred thousand P 200,000.00; and

-  Where regardless of the gross value, the estate consists of registered or registrable property such as real property, motor vehicle, share of stocks or other similar property for which a clearance from the Bureau of Internal Revenue (BIR) is required as a condition precedent for the transfer of ownership thereof in the name of the transferee.

b)   Where there is no executor or administrator appointed, qualified and acting within the Philippines, then any person in actual or constructive possession of any property of the decedent must file the return.

c)   The Estate Tax imposed under the Tax Code shall be paid by the executor or administrator before the delivery of the distributive share in the inheritance to any heir or beneficiary. Where there are two or more executors or administrators, all of them are severally liable for the payment of the tax. The estate tax clearance issued by the Commissioner or the Revenue District Officer (RDO) having jurisdiction over the estate, will serve as the authority to distribute the remaining/distributable properties/share in the inheritance to the heir or beneficiary.

d)   The executor or administrator of an estate has the primary obligation to pay the estate tax but the heir or beneficiary has subsidiary liability for the payment of that portion of the estate which his distributive share bears to the value of the total net estate. The extent of his liability, however, shall in no case exceed the value of his share in the inheritance.

2.   What are the procedures in the filing of the Estate Tax Return and payment of the corresponding taxes?

a)   The Estate Tax Return (BIR Form 1801) shall be filed and payment made with an Authorized Agent Bank (AAB) of the Revenue District Office (RDO) having jurisdiction over the place of residence of the decedent at the time of his/her death.

b)   If there is no AAB within the residence of the decedent, the Estate Tax Return must be filed and the payment made with the Revenue Collection Officer or duly Authorized City or Municipal Treasurer of the RDO having jurisdiction over the place of residence of the decedent.

c)   If the required filer has no legal residence in the Philippines, the Estate Tax return will be filed and payment be made with:

-  The Office of the Revenue District Officer, Revenue District Office No. 39, South Quezon City; or

-  The Philippine Embassy or Consulate in the country where decedent is residing at the time of his/her death.

d)   Submit all documentary requirements and proof of payment to the Revenue District Office having jurisdiction over the place of residence of the decedent.

e)   Payment of Estate tax by installment -In case the available cash of the estate is not sufficient to pay its total estate tax liability, the estate may be allowed to pay the tax by installment and a clearance shall be released only with respect to the property, the corresponding/computed tax on which has been paid.

3. What are included in gross estate?

 For resident alien decedents/citizens:

a)   Real or immovable property, wherever located

b)   Tangible personal property, wherever located

c)   Intangible personal property, wherever located

For non-resident decedent/non-citizens:

a)   Real or immovable property located in the Philippines

b)   Tangible personal property located in the Philippines

c)   Intangible personal property - with a situs in the Philippines such as:

-  Franchise which must be exercised in the Philippines

-  Shares, obligations or bonds issued by corporations organized or constituted in the Philippines

-  Shares, obligations or bonds issued by a foreign corporation 85% of the business of which is located in the Philippines

-  Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines ( i. e. they are used in the furtherance of its business in the Philippines)

-  Shares, rights in any partnership, business or industry established in the Philippines

4.   What are excluded from gross estate?

GSIS proceeds/ benefits

Accruals from SSS

Proceeds of life insurance where the beneficiary is irrevocably appointed

Proceeds of life insurance under a group insurance taken by employer (not taken out upon his life)

War damage payments

Transfer by way of bona fide sales

Transfer of property to the National Government or to any of its political subdivisions

Separate property of the surviving spouse

Merger of usufruct in the owner of the naked title

Properties held in trust by the decedent

Acquisition and/or transfer expressly declared as not taxable

5.   What will be used as basis in the valuation of property?

The properties subject to Estate Tax shall be appraised based on its fair market value at the time of the decedent's death.

The appraised value of the real estate shall be whichever is higher of the fair market value, as determined by the Commissioner (zonal value) or the fair market value, as shown in the schedule of values fixed by the Provincial or City Assessor.

If there is no zonal value, the taxable base is the fair market value that appears in the latest tax declaration.

If there is an improvement, the value of improvement is the construction cost per building permit or the fair market value per latest tax declaration.

6.   What are the allowable deductions for Estate Tax purposes?

For Resident Decedent

 Expenses, losses, indebtedness and taxes

a)    Funeral Expenses

i)    CA 466 - 5 % of gross estate (up to Dec. 31, 1972)

ii)    PD 69 - 5 % of gross estate but not exceeding P 50,000 (Jan. 1, 1973 to July 27, 1992)

iii)   RA 7499 - 5 % of gross estate but not exceeding P 100,000 (July 28, 1992 to December 3l, 1997)

iv)   RA 8424 - 5% of gross estate but not exceeding P 200,000 (Jan. 1,1998)

b)   Judicial expenses of the testamentary/intestate proceedings

c)   Valid claims against the estate

d)   Claims against insolvent person

e)   Unpaid mortgages/indebtedness

f)    Unpaid taxes

g)   Casualty losses

h)   Property previously taxed or vanishing deductions

      Requisites:

Present decedent must have died within five (5) years from date of death of prior decedent or date of gift

The property with respect to which the deduction is claimed must have formed part of the gross estate situated in the Philippines of the prior decedent or taxable gift of the donor

The property must be identified as the same property received from prior decedent or donor or the one received in exchange therefore

The estate taxes on the transmission of the prior estate or the donors tax on the gift must have been finally determined and paid

No vanishing deduction on the property or the property given in exchange therefore was allowed to the prior estate

i)    Transfer for public purpose

j)    Share of surviving spouse

k)   Medical expenses - those incurred by the decedent within one (1) year prior to his/her death which shall be substantiated with receipts

(NOTE: Amount allowable as deduction depends on the law prevailing at the time of death of the decedent).

l)    Family Home - fair market value but not to exceed P1,000,000.00

m)  Standard Deduction - an amount equivalent to P1,000,000.00 (applicable only for death occurring after the effectivity of RA 8424 which is January 1, 1998.)

n)  Amount received by the heirs under Republic Act No. 4917 (applicable only for death occurring after the effectivity of RA 8424 which is January 1, 1998)

For Non-Resident Decedent, not a citizen of the Philippines

• Expenses, losses, indebtedness, taxes
• Property previously taxed
• Transfer for public use
• Share in the conjugal property

Source: www.bir.gov.ph