ESTATE TAX, Frequently Asked Questions*
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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 prerequisite for the transfer of ownership thereof in the name of the transferee. (part II par.(1.#3) of RMC No. 34-2013)
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 included in gross estate?
For resident alien decedents/citizens:
For non-resident decedent/non-citizens:
a) Real or immovable property, wherever located
b) Tangible personal property, wherever located
c) Intangible personal property, wherever located
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
3. 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
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.
4. 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.
5. What are the allowable deductions for Estate Tax Purposes?
Applicable for deaths occurring after the effectivity of RA 8424 - January 1, 1998
For a citizen or resident alien
A. Expenses, losses, indebtedness and taxes
(1) Actual funeral expenses (whether paid or unpaid) up to the time of interment, or an amount equal to five percent (5%) of the gross estate, whichever is lower, but in no case to exceed P200,000.
(2) Judicial expenses of the testamentary or intestate proceedings.
(3) Claims against the estate.
(4) 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; and,
(5) Unpaid mortgages, taxes and casualty losses
B. Property previously taxed (Vanishing Deduction) (Section 86(2) of the NIRC as amended by Republic Act No. 8424)
An amount equal to the value specified below of any property forming a part of the gross estate situated in the Philippines of any person who died within five (5) years prior to the death of the decedent, or transferred to the decedent by gift within five (5) years prior to his death, where such property can be identified as having been received by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise or inheritance, or which can be identified as having been acquired in exchange for property so received:
One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more than two (2) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more than three (3) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not more than four (4) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; and
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more than five (5) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;
These deductions shall be allowed only where a donor’s tax or estate tax imposed was finally determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and only in the amount finally determined as the value of such property in determining the value of the gift, or the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent’s gross estate, and only if in determining the value of the estate of the prior decedent, no Property Previously Taxed or Vanishing Deduction was allowable in respect of the property or properties given in exchange therefor. (Section 6 & 7 of RR 2-2003)
C. Transfers for public use
D. The family home - fair market value but not to exceed P1,000,000.00
The family home refers to the dwelling house, including the land on which it is situated, where the husband and wife, or a head of the family, and members of their family reside, as certified to by the Barangay Captain of the locality. The family home is deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such for as long as any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family Code)
E. Standard deduction – A deduction in the amount of One Million Pesos (P1,000,000.00) shall be allowed as an additional deduction without need of substantiation.
F. Medical expenses – All medical expenses (cost of medicines, hospital bills, doctor’s fees, etc.) incurred (whether paid or unpaid) within one (1) year before the death of the decedent shall be allowed as a deduction provided that the same are duly substantiated with official receipts. For services rendered by the decedent’s attending physicians, invoices, statements of account duly certified by the hospital, and such other documents in support thereof and provided, further, that the total amount thereof, whether paid or unpaid, does not exceed Five Hundred Thousand Pesos (P500,000).
G. Amount received by heirs under Republic Act No. 4917-Any amount received by the heirs from the decedent’s employer as a consequence of the death of the decedent-employee in accordance with Republic Act No. 4917 is allowed as a deduction provided that the amount of the separation benefit is included as part of the gross estate of the decedent.
H. Net share of the surviving spouse in the conjugal partnership or community property
For a non-resident alien
A. Expenses, losses, indebtedness and taxes
B. Property previously taxed
C. Transfers for public use
D. Net share of the surviving spouse in the conjugal partnership or community property
No deduction shall be allowed in the case of a non-resident decedent not a citizen of the Philippines, unless the executor, administrator, or anyone of the heirs, as the case may be, includes in the return required to be filed in the Section 90 of the Code the value at the time of the decedent’s death of that part of his gross estate not situated in the Philippines.
Please note that the allowable deductions will vary depending on the law applicable at the time of the decedent’s death.
6. What does the term "Funeral Expenses" include? (Sec 6 (A)(1) of RR 2-2003)
The term "FUNERAL EXPENSES" is not confined to its ordinary or usual meaning. They include:
(a) The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the occasion of the burial;
(b) Expenses for the deceased’s wake, including food and drinks;
(c) Publication charges for death notices;
(d) Telecommunication expenses incurred in informing relatives of the deceased;
(e) Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased owns a family estate or several burial lots, only the value corresponding to the plot where he is buried is deductible;
(f) Interment and/or cremation fees and charges; and
(g) All other expenses incurred for the performance of the rites and ceremonies incident to interment. Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like are not deductible. Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased are not deductible. Actual funeral expenses shall mean those which are actually incurred in connection with the interment or burial of the deceased. The expenses must be duly supported by official receipts or invoices or other evidence to show that they were actually incurred.
7. What does the term "Judicial Expenses" include? (Sec 6 (A)(2) of RR 2-2003)
Expenses allowed as deduction under this category are those incurred in the inventory-taking of a assets comprising the gross estate, their administration, the payment of debts of the estate, as well as the distribution of the estate among the heirs. In short, these deductible items are expenses incurred during the settlement of the estate but not beyond the last day prescribed by law, or the extension thereof, for the filing of the estate tax return. Judicial expenses may include:
(a) Fees of executor or administrator;
(b) Attorney’s fees;
(c) Court fees;
(d) Accountant’s fees;
(e) Appraiser’s fees;
(f) Clerk hire;
(g) Costs of preserving and distributing the estate;
(h) Costs of storing or maintaining property of the estate; and
(i) Brokerage fees for selling property of the estate.
Any unpaid amount for the aforementioned cost and expenses claimed under
“Judicial Expenses” should be supported by a sworn statement of account issued and signed by the creditor.
8. What are the requisites for deductibility of claims against the Estate? (Sec 6(A)(3) of RR 2-2003)
(a) The liability represents a personal obligation of the deceased existing at the time of his death except unpaid obligations incurred incident to his death such as unpaid funeral expenses (i.e., expenses incurred up to the time of interment) and unpaid medical expenses which are classified under a different category of deductions pursuant to these Regulations;
(b) The liability was contracted in good faith and for adequate and full consideration in money or money’s worth;
(c) The claim must be a debt or claim which is valid in law and enforceable in court;
(d) The indebtedness must not have been condoned by the creditor or the action to collect from the decedent must not have prescribed.
*Source, bir.gov.ph
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