Everything you need to know about estate tax

They say taxes are certain, even upon death. What and why are the estates of deceased persons taxed? Are there exemptions?

According to the Civil Code of the Philippines, “Succession is a mode of acquisition by virtue of which, the property, rights and obligations to the extent of the value of the inheritance of a person are transmitted through his death to another or others, either by his will or by operations of law.”

Succession and inheritance however, are coupled with responsibilities like the filing of tax return and payment of tax on the estate of the deceased.

An Estate Tax is described by the Bureau of Internal Revenue (BIR) as “a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition.” Contrary to misconceptions, it is not a tax on property, but rather on the privilege of transmitting the property upon the owner’s death.

Who should file?

Regardless of the estate’s gross value, the following are required to file the Estate Tax Return: the executor, administrator, or any of the legal heir/s of the decedent, whether or not a resident of the Philippines; or if there is no executor or administrator appointed, any person in actual or constructive possession of any of the properties of the decedent.

Tax rate

The rate is based on the existing law at the time of decedent’s death, even if the heirs or beneficiaries are not in possession of the decedent’s estate. 

Since January 1, 2018, the estate tax rate per Republic Act (RA) No. 10963 or Tax Reform for Acceleration and Inclusion (TRAIN) Law, is six percent, based on the Net Taxable Estate value of all properties, whether real or personal, tangible or intangible, less allowable deductions.

Prior to the above date, varying periods imposed different tax rates (based on ranges) as detailed in the BIR’s website (bir.gov.ph). These periods and the applicable laws are:

1. January 1, 1998 to December 31, 2017 (RA 8424)

2. July 28, 1992 to December 31, 1997, Section 77 of National Internal Revenue Code (NIRC), as amended (RA 7499)

3. January 1, 1973 to July 27, 1992, Section 85 of NIRC, as amended (PD 69)

Before January 1, 1973, separate Estate Tax and Inheritance Tax rates were imposed according to the value of the net estate:

1. September 15, 1950 to December 31, 1972, Section 85 of NIRC, as amended (RA 579)

2. July 1, 1939 to September 14, 1950, Section 85 of NIRC, as amended (CA 466)

Estate’s coverage

Gross estates of the decedents at the time of death include real and immovable properties, tangible and intangible personal properties like shares, obligations or bonds issued by corporations or businesses organized, established or operating in the Philippines.

Excluded in the gross estates are allowed deductions that are dependent on the applicable law/s at the time of the decedent’s death including funeral and judicial expenses.

Deadline for filing and payment

The date for filing of return and payment of the tax should be made within a year from the decedent’s death, subject to a filing extension not to exceed 30 days if granted by the BIR.

In case the cash of the estate is insufficient to pay the total tax due, installment payments may be allowed within two years from the payment’s statutory date, without penalty and interest, upon the BIR’s approval. In meritorious cases, it may be extended depending on whether it is settled through the courts, or extra-judicially.

Penalties

Surcharges of 25 percent shall be imposed and collected for the failure to file the return and/or pay the corresponding tax on the date due, and 50 percent on willful neglect or filing of fraudulent returns.

In addition, unpaid taxes shall be assessed interest for deficiency (insufficient amount paid) and/or delinquency (no payment made) of 20 percent per annum prior to the TRAIN Law’s effectivity, or 12 percent per year after the TRAIN Law’s effectivity, from the payment date prescribed until the amount is fully paid.

Estate tax amnesty

Pursuant to RA 11213 or the Tax Amnesty Act, an estate tax amnesty was granted from June 15, 2019 until June 14, 2021 to heirs who failed to settle the estates of their descendants who died on or before December 31, 2017. 

The amnesty however, excludes estate tax cases decided with finality, those covered by Tax Amnesty on Delinquencies, and properties involved in pending cases falling under the Presidential Commission on Good Government, unexplained or unlawfully acquired wealth under the Anti-Graft and Corrupt Practices Act (RA 3019), An Act Defining and Penalizing Crime of Plunder (RA 7080), Anti-Money Laundering Act (RA 9160, as amended), tax evasion and other criminal offenses under the NIRC, and those involving frauds, illegal exactions and transactions, malversation of public funds and property under the Revised Penal Code.

The law was amended by RA 11569 last year and the amnesty period was extended for another two years or until June 14, 2023. Those who will avail of the estate tax amnesty will enjoy immunity from civil, criminal and administrative cases, and penalties.

The tax rate was set at six percent, without penalty, at every stage of the transfer, subject to a P5,000 minimum for each decedent’s transfer.

For proper guidance, consult an estate lawyer and/or tax professional for your particular case.

(References include Bureau of Internal Revenue – Estate Tax; BIR RR 6-2019; BIR RR 17-2021;

RA 386, as amended; RA 10963; RA 11213; RA 11569).

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Henry L. Yap is an architect, environmental planner, real estate practitioner and former professorial lecturer.

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