B rie f in g o n R A 10 9 6 3 :

Tax Reform for Acceleration and

Inclusion (TRAIN) –
Transfer Taxes

The Law that Governs the Impos ition

of Estate Tax
It is a well-settled rule that estate taxation is governed by the statute
in force at the time of death of the decedent. The estate tax accrues
as of the death of the decedent and the accrual of the tax is distinct from
the obligation to pay the same. Upon the death of the decedent,
succession takes place and the right of the State to tax the privilege
to transmit the estate vests instantly upon death.

Nature of Estate Tax

Nature of Estate Tax– It is a tax on the right to transfer property at death
(succession) and on certain transfers which are made by law the
equivalent of testamentary disposition and is measured by the value of
the property.
• It is an excise tax, the object of which is the shifting of
economic benefits and enjoyment of property from the dead
to the living.
• It accrues as of the death of the decedent, notwithstanding the
postponement of the actual possession or enjoyment of the
estate by the beneficiary.
• The taxpayer in the estate taxation is the estate of the
decedent represented by the administrator, executor or legal
heirs.
Kinds of Wills:
1.Notarial or Ordinary or Attested Will – is one which is executed in
accordance with the formalities prescribed by Art. 804 to 808 of the New
Civil Code such as. It is a will that is created for the testator by a third
party, usually his lawyer, follows proper form, signed and dated in front
of the required number of witnesses (3 or more witnesses) and
acknowledged by the presence of a notary public.
2.Holographic Will–is a written will which must be entirely written,
dated and signed by the hand of the testator himself, without the
necessity of any witness. This kind of will does not need formalities
because many people can recognize his handwriting and it can be
verified by a penmanship expert.
• Codicil – a supplement or addition to a will, made after the
execution of a will and annexed to be taken as a part thereof,
by which any disposition made in the original will is
explained, added to or altered.
Kinds of Succession
1)Testamentary - succession which results from the designation of an heir, made in
a will executed in the form prescribed by law (Art. 779, CCP).
- While the decedent may dispose of his properties in a last will and
testament, he must, however, reserve some for certain persons who are called by
law as compulsory or forced heirs.
Kinds of successors in a testamentary succession
1.Legatee, an heir to a particular personal property given by virtue of a will.
2.Devisee, an heir to a particular real property given by virtue of a will.

• Under testamentary succession, the mass of properties left by the decedent

maybe classified into:
• 1. Legitime is the portion of the testators property which could not be
disposed of freely because the law has reserved it for the compulsoryeir (Art.
883, CCP)
• 2. Free portion is that part of the whole estate which the testator could
dispose of freely through written will irrespective of his relationship to the
recipient.

Executor
-is the personnominated by a testator to carry out the directions and
request in his will and to dispose of his property according to his testamentary
provisions after his death.
Compulsory or Forced Heirs:
1.legitimate children and descendants
2.In default of the foregoing, legitimate parents or ascendants
3.Widow or widower; and
4.Illegitimate children
 GROSS ESTATE
A.Gross Estate Defined
-consists of all properties and interests in properties of the decedent at
the time of his death as well as properties transferred during lifetime
(only in form), but in substance was only transferred at the time death.
B.Classification of Decedent
1)Citizen or Resident (RC/NRC/RA)
2)Non-resident Alien (NRA)
i.With reciprocity
ii.Without reciprocity

GROSS ESTATE BASED ON CITIZENSHIP & RESIDENCE

Real Property Tangible Personal Intangible Personal

Property Property

Decedent w/in w/out w/in w/out w/in w/out

Citizen or √ √ √ √ √ √
Resident

NRA w/o √ X √ X √ X
reciprocity

NRA w/ √ X √ X X X
reciprocity
What are included in gros s es tate?
F or c itizens / res ident a lien dec edents :
1. Real or immovable property, wherever situated
2. Tangible personal property, wherever situated
3. Intangible personal property, wherever situated
For non-resident alien:
1. Real or immovable property situated in the Philippines
2. Tangible personal property situated in the Philippines
3. Intangible personal property - with a situs in the Philippines,
subject to the rule of reciprocity provided under Section 104 of the
NIRC
 E state T ax
What will be used as basis in the valuation of property?
Real Properties:
3.If there is no zonal value, the taxable base is the FMV that
appears in the tax declaration at the time of death.
4.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 at the time
of death

E state T ax
What will be used as basis in the valuation of
property? Shares of Stocks:
Fair Market Value (FMV)
3. Unit of participation in any association, recreation or
amusement club (such as golf, polo, or similar clubs):
FMV shall be the bid price nearest the date of
death published in any newspaper or publication of
general circulation.

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What are excluded from gros s es tate?

 Transfer of property to the National
Estate Tax 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
ALLOWABLE DEDUCTIONS
What are allowable deductions for Estate Tax Purposes?
For a citizen or resident alien
1. Standard deduction – A deduction in the amount of Five Million Pesos
(P5,000,000.00) shall be allowed as an additional deduction without
need of substantiation.
2. Claims against the estate.
3. Claims of the deceased against insolvent persons where the value of the
decedent’s interest therein is included in the value of the gross estate
4. Unpaid mortgages, taxes and casualty losses
5. Property previously taxed
6. Transfers for public use
7. The family home – FMV but not to exceed P10,000,000.00
8. Amount received by heirs under Republic Act No. 4917

Net share of the surviving spouse in the conjugal partnership or community

property

What are the allowable deductions for Estate Tax purposes?

For a non-resident alien
1. Standard deduction – P500,000.00
2. Proportion of the following deductions
 Claims against the estate.
 Claims of the deceased against insolvent persons where the
value of the decedent’s interest therein is included in the value of
the gross estate
 Unpaid mortgages, taxes and casualty losses
 Property previously taxed
 Transfers for public use
 Net share of the surviving spouse in the conjugal or community
property.
PROPERTY RELATIONSHIP BETWEEN SPOUSES
A.COMPONENTS OF GROSS ESTATE OF A MARRIED DECEDENT
Exclusive Properties of the Decedent PXXX
Add: Common Properties (100%) XXX
Gross Estate PXXX
NOTE: Exclusive properties of the surviving spouse are excluded in computing
gross estate.

B.PROPERTY RELATIONSHIP BETWEEN SPOUSES

1)Conjugal Partnership of Gains (CPOG)
Exclusive Properties:
a.That which is brought to the marriage as his or her own;
b.That which each acquires during marriage by gratuitous title;
c.That which is acquired by right of redemption, by barter or by exchange with
property belonging to any one of the spouses; and
d.That which is purchased with exclusive money of the wife or of the husband.

Conjugal Properties:
a.Those acquired by onerous title during marriage at the expense of the common
fund, whether the acquisition be for the partnership, or for only one of the spouses;
b.Those obtained from labor, industry, work or profession of either or both
spouses;
c. The fruits, natural or industrial, or civil, due or received during marriage from
common property,
as well as the net fruits from the exclusive property of each spouse;
d.The share of either spouse in the hidden treasure which the law awards to the
finder or owner of the property where the treasure is found;
e.Those acquired through occupation such as fishing or hunting;
f.Livestock existing upon dissolution of the partnership in excess of the number of
each kind brought to the marriage by either spouse; and
g.Those are acquired by chance, such as winnings from gambling or betting.
However, losses there from shall be borne exclusively by the loser-spouse.

2.Absolute Community of Property (ACOP)

Community Properties:
a. All properties owned by the spouses at the time of celebration of the marriage; or
b. Acquired thereafter

Exclusive Properties:
a. Property acquired during marriage by gratuitous title by spouse, and the fruits as
well as the income thereof.
EXCEPTION: unless it is expressly provided by the donor, testator or grantor that
they shall form part of the community property.
b. Property for personal and exclusive use of either spouse.
EXCEPTION: jewelry shall form part of the community property.

c. Property acquired before the marriage by either spouse who has legitimate
descendants by the former marriage, and the fruits as well as the income, if any
of such property.
 Similarities between CPOG and ACOP

Property CPOG ACOP

Property inherited or received as donation during marriage Exclusive Exclusive

Property acquired during marriage (other than inheritance or Conjugal Community

donation)

Property acquired from labor, industry, work or profession Conjugal Community

of spouses

Fruits or income due or derived during the marriage coming Conjugal Community
from common property
Difference between CPOG and ACOP
Date of Marriage Regime
Before August 3, 1988 CPOG
On or After August 3, 1988 ACOP Rules In

Determining The Property Relationship

If NO agreement on marriage settlement

Property CPOG ACOP

Property before marriage or brought to the Exclusive Community
marriage
Fruits or income due or derived during the Conjugal Exclusive
marriage coming from exclusive property
 E state T ax
Computation of Estate Tax – Citizen/Resident
Gross estate: Conjugal Exclusive Total
 Real property
 Pers onal property
Less: Deductions:
 S tandard deduction (P5 M)
 Claims against the estate – debt instrument was notarized; statement s howing
disposition of proceeds of loan, if contracted within 3 years from date of death
 Claims of the deceased against insolvent persons
 Unpaid mortgages, taxes and casualty losses
 Properties previously taxed (vanishing deduction)
 Transfers for public use
 Family home (not to exceed P10 M)
 Amount received by heirs (RA 4917) amount is included in g ros s es tate of decedent
 Share of the s urviving s pous e (50% of net conjug al es tate)
Net Taxable Estate
Estate tax (6%)

E s tate T ax
Computation of Estate – Nonresident Alien
Gross estate: Conjugal Exclusive Total
 Real property
 Personal property
Less: Deductions:
 Standard deduction (P500 K)
 Proportion of the following:
a) Claims against the estate – debt instrument was notarized; statement showing
disposition of proceeds of loan, contracted within 3 years from date of death
b) Claims of the deceased against insolvent persons
c) Unpaid mortgages, taxes and casualty losses
 Properties previously taxed (vanishing deduction)
 Transfers for public use
 Share of the surviving spouse (50% of net conjugal estate)
Net Taxable Estate

19

When to file and pay?

Estate Tax File estate tax return and pay tax
within one (1) year from date of
death.
20

How about installment payments?

If case the available cash of the estate is
Estate Tax insufficient to pay the total estate tax
due, payment by installment shall be
allowed within two (2) years from the
statutory date for its payment without
civil penalty and interest.
25

1. Cash Installment
 TheE s tate
cash T installments
ax shall be
Payment of the Estate Tax by Installment
made within two (2) years from the
Estate Tax
In case of insufficiency
dateof of
cash for the
filing immediate
of the estatepayment of
tax return
the total estate tax due, the estate may be allowed to pay the
 Thetheestate
estate tax due through taxoptions,
following return shall the
including be filed
corresponding terms within one year from the date of
and conditions:
1.Cash installment decedent’s death.
2.Partial disposition of estate and application of its
proceeds to the estate tax due
 27

2. Partial disposition of estate and

application of its proceeds to the
estate tax due
Estate Tax  The disposition, for purposes of this
option, shall refer to the conveyance
of property, whether real, personal or
intangible property, with the
equivalent cash consideration
 The estate tax return shall be filed
within one year from the date of
decedent’s death

28

2. Partial disposition of estate and

application of its proceeds to the
estate tax due
Estate Tax  The written request for the partial disposition of
estate shall be approved by the BIR. The said request shall
be filed, together with a notarized undertaking that the
proceeds thereof shall be exclusively used for the
payment of the total estate tax due
 The computed estate tax due shall be allocated in
proportion to the value of each property;
 The estate shall pay to the BIR the proportionate
estate tax due of the property intended to be
disposed of
 29

2. Partial dis pos ition of es tate and

application of its proceeds to the
estate tax due
30 Estate Tax  An electronic Certificate Authorizing Registration
2. Partial dis pos shall
(eCAR) itionbeof es tate
issued uponand
presentation of the
application of its proceeds to the
proof of payment of the proportionate estate tax
estate tax due
due of the property intended to be disposed.
Estate Tax  Accordingly,
In case eCARs
of failure to pay theshall
totalbe issued
estate taxas many
due out as there
fromarethe
properties
proceedsintended to bedisposition,
of the said disposed tothecover the
estate
totaltax due tax
estate shall
due,benetimmediately due and estate
of the proportionate
demandable subject to the applicable penalties
tax(es) previously paid under this option; and
and interest reckoned from the prescribed
deadline for filing the return and payment of the
estate tax, without prejudice of withholding the
issuance of eCAR(s) on the remaining properties
until the payment of the remaining balance of
the estate tax due, including the penalties and
interest.

31

Illustrative examples to properly

Estate present the manner of deducting
family home, standard deduction, and
Tax
other allowable deductions from the
gross estate in accordance with the
provisions of the NIRC.
 32

Illu stration s :
1. Decedent is unmarried, family home more than
P10,000,000
Estate Tax 2. Decedent is married, the family home is conjugal
property, more than P10,000,000
4. Decedent is an unmarried, the family home is
below P10,000,000
5. Decedent is married, the family home is conjugal
property and is below 10,000,000
6. Decedent is married, the family home exclusive
property and below P10,000,000

33

Illu s tra tio n N o . 1

Estate Tax Decedent is unm a rried, fa m ily hom e ha s a

FMV of P 30M. In a ddition he ha s other
rea l a nd pers ona l properties a m ounting to
P14M. Decedent has an unpaid
mortgage/unpaid taxes amounting to P2M

Com pute the ta xa ble es ta te.

 E state Tax
Solution
Real and personal properties P 14,000,000
Family Home 30,000,000
Gross Estate P44,000,000
Less: Deductions Ordinary 2,000,000
Deductions
Special Deductions 10,000,000
Family Home
Standard Deduction 5,000,000
Total Deductions (17,000,000)
NET TAXABLE ESTATE P27,000,000

35

Illu s tration N o. 2
Decedent is ma rried, fa mily home which is
Estate Tax conjug a l ha s a FMV of P 30M, other
conjug a l properties a re rea l a nd pers ona l
properties amounting to P14M. In addition, he
has an exclusive properties amounting to
P5M. Decedent has an unpaid
mortgage/unpaid taxes amounting to P2M

Compute the ta xa ble es ta te

41

Illu s tration N o. 4
Decedent is unmarried, family home is
Estate Tax P9M. In addition he has other real and
personal properties amounting to P14M.
Decedent has an unpaid mortgage/unpaid
taxes amounting to P2M

Compute the ta xa ble es ta te.

 42

Real and personal P 14,000,000

properties
Family Home 9,000,000
S o lu tion Gross Estate P23,000,000

Less: Deductions

Ordinary Deductions 2,000,000

Special Deductions 14,000,000

Fa m ily Hom e 9,000,000

S ta nda rd Deduction 5,000,000

Tota l Deductions (16,000,000)

NET TAXABLE ESTATE P7,000,000

43

Illu s t ra t io n N o . 5
Decedent is married, family home which is
Estate Tax conjugal has a FMV of P9M, other conjugal
properties are real and personal properties
amounting to P14M. In addition, he has
exclusive properties amounting to P5M.
Decedent has an unpaid mortgage/unpaid
taxes amounting to P2M

Com pute the ta xa ble es ta te.

44 Exclusive Conjugal Total

Conjugal Properties
Family Home 9,000,000 9,000,000
Real and personal properties 14,000,000 14,000,000
Exclusive Properties 5,000,000 30,000,000
Gross Estate 5,000,000 23,000,000 28,000,000
Less:
Ordinary Deductions (2,000,000) (2,000,000)
Solution Conjugal Ordinary Deductions
11,500,00
Net Conjugal Estate 21,000,000
Special Deductions
Family Home (4,500,000)
Standard Deduction (5,000,000)
Total Deductions
Net Estate 16,500,000
Less: 1/2 Share of Surviving Spouse (10,500,000)
Conjugal Property P23,000,000
Conjugal Deductions (2,000,000)
Net Conjugal Estate 21,000,000
(P21,000,000/2)
NET TAXABLE ESTATE P6,000,000
45

Illu s tra tio n N o . 6

Decedent is married, the estate includes
Estate Tax conjugal real and personal properties
amounting to P14M and a family home with a
FMV of P9M, which is exclusive.
Decedent has an unpaid mortgage/unpaid
taxes amounting to P2M.

Com pute the ta xa ble es ta te.

48

The Law that Governs the Impos ition

of Donor’s Tax
Donor’s The donor’s tax is not a property tax, but is a tax
imposed on the transfer of property by way of gift inter
Tax vivos. (Lladoc vs. Commissioner of Internal Revenue, L-
19201, June 16, 1965; 14 SCRA, 292)
The donor’s tax shall not apply unless and until there
is a completed gift. The transfer of property by gift is
perfected from the moment the donor knows of the
acceptance by the donee; it is
completed by thedelivery, either actually or
constructively, of the donated property to the
donee.

49

The Law that Governs the

Imposition of Donor’s Tax
Donor’s
 Thus , the law in f orc e a t the tim e of the
Tax perfection/completion of the donation shall
govern the imposition of the donor’s tax.

50

Dona tions or g if ts with at least

Donor’s P 250,000 worth will be imposed
Tax a donor’s tax of 6% flat rate.
This will be imposed regardless of
the relationship between the donor and
the donee.
51

Exemption of Certain Gifts

Gifts Made by a Resident or by a Nonresident
not a Citizen of the Philippines
Donor’s Gifts made to or for the use of the National
Government or any entity created by any of its agencies
Tax which is not conducted for profit, or to any political
subdivision of the said Government; and
Gifts in favor of an educational and/or charitable, religious,
cultural or social welfare corporation, institution,
accredited nongovernment organization,
trust or philanthropic organization or research institution
or organization.

52

Illu s tra tio n N o . 1

Ms . MRU m a de the following dona tion on:

Donor’s
Tax J a nua ry 30, 2018 – P2,000,000
Ma rch 30, 2018 – 1,000,000
Aug us t 15, 2018 – 500,000

Com pute the donor’s ta x due

Donor’s Tax
Solution
Date of donation Amount Donor’s Tax
January 30, 2018 P2,000,000

January 30, 2018donation Less:

2,000,000
Exempt Gift
(250,000)
Net Gift Rate
1,750,000
6%

Ta x Due / P aya ble on J a nua ry Dona tion P105,000

 D o n o r ’s T a x
Continuation….
Date of donation Amount Donor’s
Tax
March 30, 2018 P1,000,000
March 30, 2018 donation Add: 1,000,000
January 2018 donation Less: 2,000,000
Exempt Gift (250,000)
Total Tax Rate 2,750,000
6%
Tax Due Thereon 165,000
Less: Tax due/paid on January donation 105,000
Tax Due/Payable on the March donation P 60,000

D o n o r ’s Ta x : S u m m a ry o f C h a n g e s
RA 8424 (OLD) RA 10963(TRAIN)
Rate
Relative Graduated 2%-15% 6%
First P100,000 of net gift is P250,000-Exempt
exempt
2% on P100,001 to P200,000
15% on amount over P10 M
Stranger 30% 6%
P250,000-Exempt
Exemption: Dowries or allowed none
gifts on account of
marriage of 10K