TRANSFER TAX

Transfer Taxes

 Those imposed upon gratuitous disposition of private

property.

 They are taxes levied on the transmission of property

from a decedent to his heirs or from a donor to donee.
ESTATE TAXATION
BIR FORM 1801
Filing Deadlines

 Estate Tax Return – 1 year from decedent’s death

 Instalment payment of estate tax – within 2 years from
the statutory date for its payment without civil penalty
and interest
Kinds of Death Taxes

 Estate Tax – is a tax on the right of the deceased person

to transmit his estate to his lawful heirs or
beneficiaries.
 Inheritance Tax – is a tax on the right of the heirs or
beneficiaries to receive the estate of the deceased
person which is levied upon the part of an estate which
each heir receives.
Kinds of Taxpayers
 Resident Decedent – citizens or resident aliens of the Philippines at the
time of death. The gross estate shall include all his properties and
interests therein wherever situated.
 Non-resident Decedent – one who is not a citizen of the Philippines at
the time of death. Only his property located in the Philippines shall
form part of his gross estate.
  
Formula for computing estate tax
due:
Gross Estate (exclusive and conjugal/community)
Less: Allowable Deductions (ordinary and special)
= Estate After Deductions
Less: ½ Net Share Surviving Spouse Conjugal Property
= Taxable Net Estate
Multiplied by: 6% Tax Rate (TRAIN
Law)_____________
= Amount of Estate Tax Due
Rates and computation of estate tax as provided
in Section 84 of the Tax Code:

OVER BUT NOT THE TAX PLUS OF

OVER SHALL BE EXCESS
OVER
200,000 EXEMPT
200,000 500,000 -0- 5% 200,000
500,000 2,000,000 15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,00 465,000 15% 5,000,000
0
10,000,00 AND OVER 1,215,000 20% 10,000,00
0 0
Basic Concepts:

 Estate – refers to all property, rights, and

obligations of a person which are not extinguished
by his death
 Heir – the person whose property is transmitted
through succession, whether or not he left a will.
 Legatee – a heir to particular personal property
given by virtue of a will
 Devisee – a heir to a particular real property given
by virtue of a will
 Legitime – is the part of testator’s property which
he cannot dispose of because the law has reserved
it for certain heirs who are called compulsory
heirs
Gross Estate

 It is the total value of all property whether real or

personal, tangible or intangible belonging to the
decedent at the time of his death, situated within or
outside the Philippines, where such decedent was a
resident or citizen of the Philippines.

 The estate shall be appraised at the fair market

value as of the time of death. The appraised value of
real property as of the time of death shall be
whichever is higher of:
 the FMV as determined by the Commissioner (ZONAL VALUE)
 the FMV as shown in the schedule of value fixed by the
Provincial and City Assessors (ASSESSED VALUE)
Notes to Remember:

 In case of shares of stock, the fair market

value shall depend whether or not the shares
of stock are listed and traded in a stock
exchange. If the shares of stock are listed and
traded in a stock exchange, the fair market
value shall be the arithmetic mean between
the highest and the lowest quotation of the
shares of stock on the valuation date or on
the date nearest the valuation date. If the
shares of stock are unlisted in a stock
exchange, the fair market value shall be the
book value if common, and the par value if
preferred.
Notes to Remember:

 An estate tax return showing a gross estate exceeding

P2,000,000 must be accompanied by a statement duly
certified by CPAs.

Gross estate
exceeding
P5,000,000 – needs
a CPA Certification
Example of CPA Certification

 This is to certify that the Statement of Assets and Deductions of

the Estate of Juan Dela Cruz who died on November 30, 2013,
itemizing the gross estate of the decedent and the deductions
from the gross estate, a copy of which is hereto attached, is
true and correct and in accordance with the provisions of Title
III on Estate and Donor’s Taxes of the National Internal
Revenue Code of 1997, as amended.

Juana Change
CPA Certificate No. 11
B.O.A. AN.: 520 valid until December 31, 2024
B.I.R. AN.: 07-000594-1-2022
T.I.N.: 223-353-666-000
PTR No. 1095004, issued on January 03, 2020, Province of Rizal
September 11, 2020
 All transfers subject to estate
tax or estates consisting of
registered or registrable
property require filing of
estate tax return (Register of
Deeds/Land Registration
Authority)
 Deletion of written notice of
death for gross estate
exceeding P20,000
 6% final tax on withdrawal’s
from a decedent’s bank
account.
Notes to Remember:
 Proceeds of life insurance taken out by
the decedent on his own life shall be
included in the gross estate if the
beneficiary designated is his estate,
executor or administrator, whether or
not the designation is revocable, or if the
beneficiary designated is a 3rd person and
the designation of beneficiary is
revocable.

 If the life insurance was taken out not by

the decedent himself, the proceeds shall
not be included in the gross estate.
Notes to Remember:
 By statutory provision, the following are intangible
personal properties located in the Philippines and
shall be included in the gross estate:
A. Franchise which must be exercised in the
Philippines.
B. Shares, obligations or bonds issued by a domestic
corporation
C. Shares, obligations or bonds issued by a foreign
corporation 85% of the business of which is located
in the Philippines
D. Shares, obligations or bonds issued by a foreign
corporation if such shares, obligations or bonds
have acquired a business situs in the Philippines
E. Shares or rights in any partnership, business or
industry in the Philippines
Notes to Remember:
 Although intangible personal properties in the
Philippines shall be included in the gross estate of a
decedent who was not a citizen or resident of the
Philippines, such intangible personal properties shall
not be included in the gross estate if the reciprocity
clause in the estate tax law applies. Under the
reciprocity clause, the intangible personal property
in the Philippines shall not be included in the gross
estate:
A) If the country of which the decedent was a citizen
and resident at the time of his death either had no
death tax at all or
B) If having a law imposing a death tax, totally
exempts from that death tax the intangible personal
properties located there belonging to a citizen of the
Philippines not residing there.
Notes to Remember:
 The gross estate shall include properties physically in the gross estate
owned by the decedent at the time of his death and properties not
physically in the estate, if such properties were transferred by the decedent
during his lifetime by way of a) transfer in contemplation of death, b)
revocable transfer, c) transfer under a general power of appointment.
 A transfer in contemplation of death is a transfer motivated by the thought
of death. In law, this is called donation mortis causa.
 A revocable transfer is a transfer where the transferor during his lifetime
could change the terms of possession or enjoyment by the transferee or
even take back the property.
 A transfer under a general power of appointment shall include the value of
property in the gross estate. Where the transfer of property was under a
limited power of appointment, no value shall be included in the gross
estate.
 -If the consideration was not full and adequate, the value to include
in the gross estate shall be the excess of the FMV at the time of death
over the consideration received.
 
Notes to Remember:
Marriage settlements may fix the property
relations during the marriage within the
limits provided by the Family Code. The
future spouses, in the marriage settlements
agree upon any of the following regimes:
 1. Absolute community
 2. Conjugal Partnership of Gains
 3. Complete Separation of
Property
Under the system of Conjugal Partnership of
Gains or relative community of property, the
following shall be Exclusive Properties:

a) That which is brought to the marriage as

his or her own
b) That which each acquires during the
marriage by the gratuitous title of
inheritance or gift
c) That which each acquires by right of
redemption or by exchange of property
belonging to one of the spouses
d) That which is purchased with the
exclusive money of the wife or the
husband
Under the system of Conjugal
Partnership of Gains:
 Property that cannot be clearly identified
as exclusive shall be presumed to be
conjugal.
 Income during the marriage is conjugal.
 Anything acquired during the marriage in
exchange of exclusive property or
purchased with exclusive money is
exclusive property.
Under the system of Absolute Community
of Property, the following shall be
Exclusive Properties:
A) Property acquired during the marriage by gratuitous
title (inheritance or gift) by either spouse and the
fruits as well as the income thereof, if any, unless it
is expressly provided by the benefactor that they
shall be part of community.

B) Property for personal and exclusive use of either

spouse, however, jewelry shall form part of the
community property

C) Property acquired before the marriage by either

spouse who has legitimate decedents by a former
marriage and the fruits as well as the income, if
any, of such property
Under the system of Absolute
Community of Property:

 In general, anything owned before the

marriage, upon marriage, becomes
community property.
 In general, anything acquired during the
marriage in exchange of exclusive
properties or purchased with exclusive
money, is exclusive property.
 In general, income during the marriage is
community property and the exceptions
are in (a) and (c), of previous slide.
 
In the Absence of Marriage
Settlements:
 The system of conjugal partnership
of gains under the Civil Code of the
Philippines shall govern marriages
contracted before August 3, 1998.
 The system of absolute community
of property shall govern marriages
contracted on or after August 3,
1998, the effectivity of the Family
Code of the Philippines.
ESTATE TAXATION
(Allowable Deductions)
Allowable Deductions from the
Gross Estate
 Ordinary Deductions
 Special Deductions
 Exclusions
 Estate Tax Credit
Ordinary Deductions

Funeral Expenses
 These are expenses incurred up to the date of
interment and anything spent for prayers, masses,
entertainment or the like after are not deductible.
 It is the amount actually paid or incurred or 5% of the
total gross estate, whichever is lower, but in no case
exceed P200,000.
 All or any portion of the funeral and burial expenses
incurred by relatives and friends of the deceased,
such as contributions or mutual assistance are not
deductible.
 The amount actually incurred related to interment or
burial paid for from the estate of the deceased and
supported by receipts or invoices.
Ordinary Deductions

Judicial Expenses
 This includes those expenses incurred in
the preservation, and settlement of the
estate such as administrator’s fee, CPA’s
fee, appraiser’s fee, etc.
 Theses are deductible if paid or incurred
prior to last day of filing of the estate tax
return and payment of the estate tax
(within 6 months from the date of death).
Ordinary Deductions

Claims Against the Estate

 These are unpaid obligations of the
decedent while still alive until his
death. It must be personal
obligation; and the obligation was
contracted for full consideration in
money; unpaid and existing at the
time of the death and enforceable
against the estate of the decedent.
Ordinary Deductions

Unpaid Mortgages or Indebtedness

 This is an encumbrance on property
left by the decedent which was
contracted in good faith while living in
consideration for money. The FMV of
the property mortgaged is included in
the gross estate without deducting the
mortgage indebtedness; and
contracted in good faith for a sum of
money.
Ordinary Deductions

Unpaid Taxes
 These are taxes deductible from the
gross estate if accrued before the
decedent’s death however they are
not deductible if accrued after the
decedent’s death.
Ordinary Deductions

Losses
 These are deductible from gross estate
if; arising from fire, storm, shipwreck,
or other casualty, or from robbery,
theft, or embezzlement; not
compensated by insurance; not
claimed as deduction for income tax
purposes; and incurred during the
settlement of the estate tax within
the last day for the payment of
estate tax
Ordinary Deductions

 Transfer in for Public Use

 The amount of all bequests,
legacies, devises, or transfers to
or for the use of the Government
of the Republic of the Philippines
or any political subdivision
thereof, for exclusively public
purposes.
Ordinary Deductions
Vanishing Deductions
 These are deductions allowed by law from the gross estate
of property previously taxed.
 The present decedent must have died within five (5) years
from the date of death of the prior decedent or date of the
gift.
 The property with respect to which deduction is claimed
must have formed part of the gross estate situated in the
Philippines of the prior decedent or the taxable gift of the
donor.
 The property must be identified as the same property
received from the prior decedent or donor or the one
received in exchange.
 The estate taxes on the prior succession or the donor’s tax
on the gift must have been finally determined and paid.
 No vanishing deduction on the property, or property given
in exchange was allowed to the prior estate.
How to compute the vanishing
deduction:
1. Determine the initial value of the property
previously taxes.
 Value of property previously taxed in prior
estate or that in present estate whichever
is lower.
2. From the initial value taken, deduct any
mortgage or lieu on the property previously
taxed paid by the present decedent prior to his
death, where such mortgage or lien was
deduction from the gross estate of the prior
decedent or gift of the donor.
How to compute the vanishing
deduction:
3. The initial value taken as reduced by step 2 shall be
further reduced as follows:
 Initial Basis X Expenses, losses, indebtedness, taxes,
transfer for public use
Gross Estate whether chargeable to exclusive or conjugal
properties.
4. Compute the final basis of property previously taxed:
 Initial Basis PXXX
Less: Limitation arrived at in step 3 XXX
Final Basis PXXX
How to compute the vanishing
deduction:
Determine the year interval
5.

between the dates of death of

the prior and present decedents,
or date of gift and death of
present decedents, or date of gift
and death of present decedent to
find the applicable percentage
deduction.
How to compute the vanishing
deduction:

6. The vanishing deduction is the final basis multiplied by the

percentage deduction:

VANISHING NOT MORE THAN PERCENTAGES

RATES
1 YEAR 100%
1 YEAR 2 YEARS 80%
2 YEARS 3 YEARS 60%
3 YEARS 4 YEARS 40%
4 YEARS 5 YEARS 20%
5 YEARS 0
Vanishing Deductions

 Under the system of conjugal partnership

of gains, vanishing deduction is always a
deduction from exclusive properties.
Under the system of absolute community
of property, vanishing deduction may be
against exclusive or community property. 
 No vanishing deduction shall be allowed
on properties outside the Philippines.
SPECIAL DEDUCTIONS

 Amounts received by heirs from

employer under RA4917 (Retirement
Benefits).
 Medical expenses includes cost of
medicines, hospital bills, doctor’s fees
etc. incurred whether paid or unpaid
at the time of death of the decedent.
It should be incurred by decedent
within one (1) year prior to his death.
Maximum amount deductible is
P500,000; supported with receipts.
SPECIAL DEDUCTIONS for
Resident Decedent
 Family Home – the deductible amount is the higher
between the assessed value. FMV or zonal but not
exceeding P1,000,000. The total value, however, must
be included as part of the gross estate of the decedent.
If conjugal property, only ½ shall be the value.
 Standard Deduction of P1,000,000

Family Home P10M;

Standard Deduction P5M
SPECIAL DEDUCTIONS OF A
Non-resident Decedent
 The special deductions are not available to the estate of
a non-resident, not citizen of the Philippines.

Standard
deduction of
P500,000
Ordinary Deductions of a
Non-resident Decedent
 For a decedent who was not a citizen and not a resident
of the Philippines, the ordinary deductions from the
gross estate would be a portion of the world ordinary
deductions, computed as follows:
 Gross Estate, Philippines X World Ordinary
Deductions
Gross Estate, World
 Removed allowance for deduction
of expenses, losses, indebtedness
and taxes
Ordinary Deductions of a
Non-resident Decedent
Item No. 2 Section 7 of RR 12-2018:
 Claims against the estate
 Claims of the deceased against insolvent persons where
the value of the interest therein is included in the value
of the gross estate
 Unpaid mortgages, taxes and casualty losses
Phil Gross Estate/ World Gross Estate x Item No. 2 =
Allowable Deduction
Ordinary Deductions of a
Non-resident Decedent
 Property previously taxed
 Transfer for public use
 Netshare of the surviving
spouse in the conjugal property
or community property
Share of Surviving Spouse
 This refers to the ½ net share of the
surviving spouse in the conjugal property
after deducting ordinary obligations
properly chargeable to property. From the
balance (net conjugal or community
estate), the ½ net share of the surviving
spouse shall be deducted from the net
estate of the decedent for purposes of
imposing the estate.
 Special deductions are not taken into
account in determining the net conjugal
or community estate.
Exclusions and Exemptions from
Gross Estate
1. Benefits received from the U.S. Veterans Administration

2. Amount received from the Philippines and US government for damages during World War II

3. Intangible personal property of a non-resident decedent under reciprocity

4. Retirement benefits of officials and employees under 4917

5. Proceeds of life insurance and benefits received by members of GSIS

6. Benefits received by member from SSS by reason of death

7. Merger of usufruct in the owner of naked title

8. The transmission or delivery of inheritance or legacy of the fiduciary heir or legatee to the
fideicommissary

9. Transmission from the first heir, legatee or donee in favor of another beneficiary in
accordance with the desire of the predecessor

10. All bequests, legacies or transfers to social welfare, cultural and charitable institutions, no
part of the net income of which inures to the benefit of the individual. Provided, however,
that no more than 30% shall be used for administrative purposes

11. The exclusive property of the surviving spouse

Estate Tax Credit

 If
there was one (1) foreign country
only to which an estate tax was
paid, the estate tax credit shall not
exceed the amount arrived at with
the use of the following formula:
NET ESTATE FOREIGN/NET ESTATE
WORLD X PHILIPPINE ESTATE TAX.
This is called LIMITATION A.
 
Estate Tax Credit

 If there were two (2) or more foreign

countries to which foreign estate taxes were
paid, tax credit for foreign estate tax shall be
computed per country using LIMITATION A.
Another computation shall be made that is
known as LIMITATION B, using formula :
 NET ESTATE OUTSIDE PHILIPPINES/NET ESTATE
WORLD X PHILIPPINE ESTATE TAX.

 The tax credit to apply shall be under

LIMITATION A or that under LIMITATION B
whichever is lower.
Procedures to be considered:
1. Extra-Judicial Settlement of Estate
2. Publication in newspaper of General Circulation
3. City Hall/ Municipal Hall Assessor’ Office –
Certified True Copy of Assessed Values of
Property
4. BIR - Zonal Values of Property
5. ECAR - Electronic Certificate Authorizing
Registration once Paid Estate tax; to be issued
BIR
6. RD – Register of Deeds/Land Registration
Authority – Transfer of Title/Cert Of Registration
QUESTIONS?