Conveyance refers to the act of transferring property, including real estate, from one party to another. It may be undertaken voluntarily and or outlined in law.
While there are numerous ways of conveying real properties, let us discuss three of the most common ways used in the Philippines.
Sale. The most frequent method of transferring real property is through sale, via the execution of a Deed of Absolute Sale (DoAS) between the seller and the buyer.
The seller relinquishes and conveys his rights over the real property to the buyer, in consideration of the agreed amount and or obligations by the seller, such that the buyer acquires full rights and ownership over the property.
The property’s information and descriptions like the Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT) number, technical description of the property, area of the lot, floor area of the improvement (e.g. house or condo unit), property address/location, and other appropriate terms and conditions must be completely indicated in the agreement to remove any ambiguity.
Spouses, however, are not allowed to sell their share of the property to each other, per Article 1490 of the Civil Code of the Philippines, except when a separation of property was agreed upon in their marriage settlement; or when there is a judicial separation of property under Article 191.
Donation. Another way of conveying real property is through donation. Legal conditions, as required by the Civil Code, must be complied with for it to be considered valid. They include the following: (i) recipient of the real property (donee) must accept the donation personally or through an authorized person with a special power of attorney for the said purpose, or with a general and sufficient power; (ii) notarized deed should specify the property and the value of the charges that the donee must satisfy; and (iii) acceptance must be done during both the donor’s and donee’s lifetime, with the acceptance made in the same or separate public/notarized document/s, provided that the donor shall be notified, and noted in both instruments.
Succession. Ownership of real property can also be conveyed to a heir or third party by way of succession, from the moment of death of the decedent.
The default mode is through “legal or intestate succession” where legitimate and illegitimate children/relatives, spouse, or even the State get to own the property in the absence of a Will; a void Will; properties not included in the Will; the conditions attached to the designated heir do not happen; heir dies ahead of the testator; or are incapable of succession, among others. The deceased person’s estate is to be divided among the compulsory heirs – surviving spouse and legitimate children. An illegitimate child shall also be entitled to half of the legitimate child’s share.
In “testamentary succession,“ the deceased person, prior to his death, had prepared a Will with designated compulsory and non-compulsory heirs. When only part of the properties in the estate are covered in the Will, “mixed succession” ensues.
The estates are to be distributed, as follows: (i) legitimate children are entitled to half, to be divided equally among themselves, with the other half considered “free portion” and can be given to non-compulsory heir/s; (ii) surviving spouse gets a fourth, if there is only one legitimate child. If there are two or more legitimate children, the spouse is entitled to the same share as each legitimate child. The spouse’s inheritance is taken from the free portion; (iii) each illegitimate child is entitled to half of a legitimate child, to be taken from the free portion too. If the total share for all illegitimate children is more than the remaining free portion, the same shall divided equally among them; (iv) the deceased’s parents/ascendants are entitled to half if there are no legitimate child and descendant.
Only after the compulsory heirs’ shares had been allocated can the free portion of deceased person’s estate be given to third party, as allowed by law. A person cannot donate or leave an inheritance to another with whom the former has illicit relationship.
A waiver of inheritance by a party in favor of another/others shall be considered a donation of the former to the latter.
Tax Comparison
The taxable value is based on the selling price, fair market or zonal values, net of allowable deductions, whichever is higher.
The current rate is pegged at six percent for both capital gains tax (for sales) and donor’s tax (donation) except if the latter’s total net gift value during the same calendar year is P250,000 or less, in which case the transaction is tax exempt. Tax on donation to relatives and non-relatives/strangers are no longer distinguished by law, i.e. uniform tax rate applies, since the effectivity of the TRAIN Law in January 1, 2018.
The Estate Tax rate is based at the time of the decedent’s death, but since the above same date, is set at six percent. Prior to that however, different tax rates were set during varying periods.
Given the above complexities, it is best to tap the services of an experienced lawyer, tax advisor and or broker.
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Henry L. Yap is an Architect, Fellow of both Environmental Planning and Real Estate Management, and one of the Undersecretaries of the Department of Human Settlements and Urban Development.
