TRANSFER TAXES

ESTATE TAX

THE LAW THAT GOVERNS THE IMPOSITION 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.

ESTATE TAX

ESTATE TAX

RATE OF ESTATE TAX

The transfer of the net estate of every decedent, whether resident or non-resident of
the Philippines, as determined in accordance with the NIRC, shall be subject to an estate tax at the rate
of six percent (6%).

ESTATE TAX

What are included in gross estate?

For citizen /resident alien decedents:

a) Real or immovable property, wherever located

b) Tangible personal property, wherever located

c) Intangible personal property, wherever located

For nonresident not citizen decedents:

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

ESTATE TAX

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

ESTATE TAX

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

ESTATE TAX

What are the 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 - fair market value 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

ESTATE TAX

What are the allowable deductions for Estate Tax Purposes?

For a nonresident alien

1. Standard deduction – P500,000.00

2. Proportion of the following deductions

a. Claims against the estate.

b. 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

c. Unpaid mortgages, taxes and casualty losses

3. Property previously taxed

4. Transfers for public use

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

Citizen or Resident ALIEN

Gross estate: Conjugal Exclusive Total

- Real property

- Personal property

Less: Deductions:

- Standard deduction (P5 M)

- Claims against the estate – debt instrument was notarized; statement showing
disposition of proceeds of loan, if contracted within 3years 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 under RA 4917, provided such amount is included in gross
estate of decedent

- Share of the surviving spouse (50% of net conjugal estate)

Net Taxable Estate

 Estate tax (6%)

NONResident ALIEN

Gross estate: Conjugal Exclusive Total

- Real property

- Personal property

Less: Deductions:

- Standard deduction (P500 K)

- Proportion of the following:

 Claims against the estate – debt instrument was notarized; statement showing
disposition of proceeds of loan, if contracted within 3years 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

- Share of the surviving spouse (50% of net conjugal estate)

Net Taxable Estate

 Estate tax (6%)

ESTATE TAX

When to file and pay?

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

How about installment Payments?

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

When is CPA Certification required?

If gross estate exceeds P5 million, attach to estate tax return a certified statement of assets
and itemized deductions.

ESTATE TAX
 • Tax clearance is required before any transfer of shares may be made in the name of new
owners, however,

• If a bank has knowledge of the death of a person, who maintained a bank deposit account alone,
or jointly with another, it shall allow any withdrawal from the said deposit account, subject to a
final withholding tax of six percent (6%), without such certification from the CIR.

DONOR’S TAX

THE LAW THAT GOVERNS THE IMPOSITION OF DONOR’S TAX

The donor’s tax is not a property tax, but is a tax imposed on the transfer of property by way of gift inter
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 the
delivery, either actually or constructively, of the donated property to the donee.

Thus, the law in force at the time of the perfection/completion of the donation shall govern the
imposition of the donor’s tax.

Donations or gifts with at least P250,000 worth will be imposed a donor’s tax of 6% flat rate.
This will be charged regardless of the relationship between the donor and the donee.

TRANSFER FOR LESS THAN ADEQUATE AND FULL CONSIDERATION

Where property, other than real property referred to in Section 24(D), is transferred for less
than an adequate and full consideration in money or money's worth, then the amount by which the fair
market value of the property exceeded the value of the consideration shall, for the purpose of the tax
imposed, be deemed a gift, and shall be included in computing the amount of gifts made during the
calendar year: Provided, however, that a sale, exchange, or other transfer of property made in the
ordinary course of business (a transaction which is a bona fide, at arm’s length, and free from any
donative intent) will be considered as made for an adequate and full consideration in money or money’s
worth.

EXEMPTION OF CERTAIN GIFTS:

 Gifts Made by a Resident or by a Nonresident not a Citizen of the Philippines

 Gifts made to or for the use of the National Government or any entity created by any of its
agencies 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:
Sample computation

Illustration:

Donations made on:

January 30, 2018 – P2,000,000

March 30, 2018 – 1,000,000
August 15, 2018 – 500,000

Solution/computation:

Date of donation Amount

Donor’s Tax
1. January 30, 2018 P2,000,000

January 30, 2018 donation 2,000,000

Less: Exempt Gift
(250,000)

1,750,000 P 105,000

Date of donation Amount

Donor’s Tax

2. March 30, 2018 1,000,000

March 30, 2018 donation 1,000,000

Add: January 30, 2018 donation 2,000,000
Less: Exempt Gift
(250,000)
Total
2,750,000

Tax Due Thereon

165,000
Less: Tax due/paid on January donation 105,000
Tax Due/Payable on the March donation
P 60,000

Date of donation Amount

Donor’s Tax

3. August 15,2018 500,000

 August 15, 2018 donation 500,000
Add: January 2018 donation 2,000,000
March 2018 donation 1,000,000
Less: Exempt Gift (250,000)

Total
3,250,000

Tax Due Thereon

195,000
Less: Tax due/paid on Jan/March donation 165,000
Tax Due/Payable on the August donation P
30,000