DEVELOPMENTS ON ESTATE TAXATION IN THE PHILIPPINES

I. Amendment of the Estate Tax Rate

Section 22 of the TRAIN law amends Section 84 of the Tax Code, which
provides for the estate-tax rate.

Previously, a tax based on the value of the net estate of the

decedent, whether resident or nonresident of the Philippines,
was computed based on a tax schedule where an estate worth
P200,000 and over was taxed from 5 percent to 20 percent.
Under the TRAIN law, it will now be subject to a flat rate
of 6 percent.

II. Amendments on Estate Tax Deductions

Section 23 of the TRAIN law amends Section 86 of the Tax Code, which
provides for the computation of the net estate or, effectively, the deductions
allowed to the gross estate of an individual.

• The TRAIN law removes funeral expenses, judicial expenses and

medical expenses as allowable deductions.

• Instead, the law increases the Standard Deduction to P5 million,

which previously only amounted to P1 million.

• Only available to citizens (resident or nonresident) and resident aliens,

TRAIN law now provides that nonresident aliens can avail
themselves of a standard deduction, although only up to
P500,000.

• Another TRAIN law significant change from the old tax rule is that now,
family homes that are worth up to P10 million will be
exempted from estate tax. Previously, only family homes
worth P1 million are exempted.

III. Amendments on the Procedure for Estate Tax Settlement

A. Repeal of Filing of Notice of Death provision

Section 24 of the TRAIN law repeals Section 89 of the Tax Code.

The repealed provision provides for when a notice of death
should be filed and the period to file the same.
B. Amendment on Filing of Estate Tax Return

Section 25 of the TRAIN law amends Section 90 of the Tax Code,

which provides for the procedural requirements for the estate-
tax return.

• The TRAIN law requires that estate-tax returns showing a gross

value exceeding P5 million must be certified by a certified
public accountant. This is P3 million higher than the old tax rule,
which only required CPA certifications for estate-tax returns that
exceed a gross value of P2 million.

• The TRAIN law has also increased the period for filing of estate-tax
returns from six months from the decedent’s death to one year.

C. Amendment of Payment of Estate Tax by Installment

Section 26 of the TRAIN law amends Section 91(c) of the Tax

Code, which provides for the payment of estate tax by
installment.

• Under the TRAIN law, payment by installment has been particularly

simplified. However, the law has provided for an implied limitation of
two years for the payment of the full estate-tax liability, which was
previously not contained in the old tax rule.

IV. Amendment on Withdrawals from Deceased’s Bank Account

Section 27 of TRAIN Law amends Section 97 of the Tax Code,

which concerns allowable withdrawals from the deceased
person’s account.

• Under the old Tax Rule, only withdrawals up to P20,000 are allowed.
The administrator of the estate or any one of the heirs may, when
authorized by the commissioner, withdraw an amount not exceeding
P20,000. However, the Train Law has increased allowable
withdrawals from the deceased person’s account to any
amount, subject to a 6% final withholding tax.

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VALUATION OF THE GROSS ESTATE. -

The properties comprising the gross estate shall be valued according to their
fair market value as of the time of decedent's death.

• If the property is a real property, the appraised value thereof as of

the time of death shall be, whichever is the higher of:
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of values fixed
by the provincial and city assessors.

For purposes of prescribing real property values, the Commissioner is

authorized to divide the Philippines into different zones or areas and shall,
upon consultation with competent appraisers, both from the private and
public sectors, determine the fair market value of real properties located in
each zone or area.

• In the case of shares of stocks, the fair market value shall depend
on whether the shares are listed or unlisted in the stock
exchanges.

Unlisted common shares are valued based on their

book value while unlisted preferred shares are valued
at par value. In determining the book value of common
shares, appraisal surplus shall not be considered as well as
the value assigned to preferred shares, if there are any.

For shares which are listed in the stock exchanges, the fair
market value shall be the arithmetic mean between the
highest and lowest quotation at a date nearest the
date of death, if none is available on the date of death
itself.

• The fair market value of units of participation in any association,

recreation or amusement club (such as golf, polo, or similar clubs),
shall be the bid price nearest the date of death published in any
newspaper or publication of general circulation.

• To determine the value of the right to usufruct, use or habitation, as

well as that of annuity, there shall be taken into account the probable
life of the beneficiary in accordance with the latest basic standard
mortality table, to be approved by the Secretary of Finance, upon
recommendation of the Insurance Commissioner.

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A. ALLOWABLE DEDUCTIONS FROM GROSS ESTATE OF A DECEDENT
WHO IS EITHER A CITIZEN OR RESIDENT OF THE PHILIPPINES

1. Standard Deduction of P5,000,000 – a SPECIAL DEDUCTION

• (Php1,000,000 before TRAIN Law)
• No need for substantiation– Full amount deductible

2. Claims against the Estate (CATE) – needs substantiation

• Contract
• Tort
• Operation of law

3. Claims against Insolvent Persons (CAIP)

4. Unpaid mortgages, taxes, losses

5. Property Previously Taxed (Vanishing Deductions)

6. Transfers for Public Use

• To Republic of the Philippines
• Any political subdivision

7. Family Home of P10,000,000 – a SPECIAL DEDUCTION

• (Php1,000,000 before TRAIN Law)
• Mere ceiling of allowable deduction re: Family Home

8. Amount received by heirs under Republic Act No. 4917

9. Net Share of the Surviving Spouse in the conjugal property or

community property (if applicable)

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B. ALLOWABLE DEDUCTIONS FROM THE GROSS ESTATE OF A
DECEDENT WHO IS A NON-RESIDENT ALIEN (NRA)

1. Standard Deduction of P500,000

• (Php0.00 Standard Deduction before TRAIN Law)
• No need for substantiation – Full amount deductible

2. Proportional Share
• Claims against the Estate (CATE) – needs substantiation
i. Contract
ii. Tort
iii. Operation of law

• Claims against Insolvent Persons (CAIP)

• Unpaid mortgages, taxes, losses

3. Property Previously Taxed (Vanishing Deductions)

4. Transfers for Public Use

• To Republic of the Philippines
• Any political subdivision

5. Net Share of the Surviving Spouse in the conjugal property or

community property (if applicable)

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