On Death and Taxes: Estate Tax under the TRAIN Law

On Death and Taxes - Estate Tax under the TRAIN Law Image

What is Estate Tax

Estate tax is defined as the tax imposed upon the privilege of individuals to transfer properties occasioned by death. It is in the nature of a national excise tax.

What law governs the imposition of estate tax? It is a well-settled rule that estate taxation is governed by the statute in force at the time of death of the decedent. The estate tax accrues as of the death of the decedent and the accrual of the tax is distinct from the obligation to pay the same. Upon death, succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death. (Revenue Regulation 12-2018)

Estate Tax under the TRAIN Law

In the Philippines, the Congress has enacted Republic Act No. 10963 or Tax Reform for Acceleration and Inclusion (TRAIN) Law, which took effect on 01 January 2018. Before the effectivity of the TRAIN Law, Republic Act No. 8424 or the National Internal Revenue Code of 1997 governs the imposition of estate tax.

Say for example, Mr. A, who died on 27 July 2018, the law which governs his estate is the TRAIN Law because at the time of his death, TRAIN Law is already in force. How much is the estate tax? The estate tax of every decedent, whether resident or non-resident of the Philippines, is computed by multiplying the net estate with six (6) percent. Under the TRAIN Law, the estate tax rate is six percent. Before the TRAIN Law, the estate tax rates range from five (5) percent to twenty (20) percent.

How to Compute Estate Tax under the TRAIN Law

It is important to note that the six (6) percent tax rate is multiplied with the NET estate. To be able to know the net estate, one must be able to start determining the gross estate. If the decedent is resident and citizens of the Philippines, his/her gross estate shall be comprised of all properties, real or personal, tangible or intangible, wherever situated. In case of non-resident aliens, gross estate shall be comprised of only properties situated in the Philippines, provided, that, with respect to intangible personal property, its inclusion in the gross estate is subject to the rule of reciprocity.

Deductions on the Net Estate of a Citizen or Resident Alien in the Philippines

The value of the net estate of a citizen or a resident alien of the Philippines shall be determined by deducting from the value of the gross estate the following items of deduction:

  1. Standard Deduction in the amount of Five Million Pesos (P5, 000, 000.00);
  • Claims against the estate which mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments;
  • 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;
  • Unpaid mortgages, taxes and casualty losses;
  • Property previously taxed;
  • Transfers for public use which is 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;
  • The Family Home which is equivalent to its current fair market value and provided that if its current fair market value exceeds ten (10) million, the excess shall be subject to estate tax;
  • Amount received by heirs under Republic Act No. 4917 which includes any amount received by the heirs from the decedent’s employer as a consequence of the death of the decedent-employee;
  • Net share of the surviving spouse in the conjugal partnership or community property

Deductions on the Net Estate of a Non-Resident Alien in the Philippines

For non-resident aliens, the items of deductions are the following:

  1. Standard deduction in the amount of Five Hundred Thousand Pesos (P500, 000.00);
  • The proportion of the total losses and indebtedness which the value of such part bears to the value of his entire gross estate wherever situated;
  • Property previously taxed;
  • Transfers for public use;
  • Net share of the surviving spouse in the conjugal property or community property

How to Pay Estate Tax in the Philippines

After computing the estate tax, the estate tax return shall be filed under oath. The executor, administrator, or the heirs shall be responsible for the filing of the estate tax return. Estate tax returns showing a gross value exceeding Five Million pesos (P5,000,000.00) shall be supported with a statement duly certified to by a Certified Public Accountant.

Moreover, the estate tax return shall be filed within one year from the decedent’s death. However, in meritorious cases, the Commissioner or any Revenue Officer authorized by him pursuant to the NIRC shall have authority to grant a reasonable extension, not exceeding thirty (30) days, for filing the return.

Finally, as a general rule, the estate tax shall be paid at the time the return is filed. An extension of time to pay the estate tax shall be allowed when the Commissioner finds that the payment would impose undue hardship upon the estate or any of the heirs. In such case, the extension shall not exceed five (4) years in case the estate is settled through courts, or two (2) years in case the estate is settled extrajudicially.

About Nicolas and De Vega Law Offices

If you need assistance regarding succession, settlement of estate, inheritance, estate planning, or have legal issues concerning Philippine taxation,  we can help you. Nicolas and de Vega Law Offices is a full-service law firm in the Philippines.  You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected]. Visit our website www.ndvlaw.com.

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