Index for Estate Tax:


Description

Estate Tax is 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. It is not a tax on property. It is a tax imposed on the privilege of transmitting property upon the death of the owner. The Estate Tax is based on the laws in force at the time of death notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary.

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Tax Form

BIR Form 1801 - Estate Tax Return

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Documentary Requirements

1. Notice of Death duly received by the BIR, if gross estate exceeds P20,000 for deaths occurring on or after Jan. 1, 1998; or if the gross estate exceeds P3,000 for deaths occurring prior to January 1, 1998

2. Certified true copy of the Death Certificate

3. Deed of Extra-Judicial Settlement of the Estate, if the estate is settled extra judicially

4. Court Orders/Decision, if the estate is settled judicially;

5. Affidavit of Self-Adjudication and Sworn Declaration of all properties of the Estate

6. A certified true copy of the schedule of partition of the estate and the order of the court approving the same, if applicable

7. Certified true copy(ies) of the Transfer/Original/Condominium Certificate of Title(s) of real property(ies) (front and back pages), if applicable

8. Certified true copy of the latest Tax Declaration of real properties at the time of death, if applicable

9. "Certificate of No Improvement" issued by the Assessor's Office declared properties have no declared improvement or Sworn Declaration/Affidavit of No Improvement by at least one (1) of the transferees

10. Certificate of Deposit/Investment/Indebtedness owned by the decedent and the surviving spouse, if applicable

11. Photo copy of Certificate of Registration of vehicles and other proofs showing the correct value of the same, if applicable

12. Photo copy of certificate of stocks, if applicable

13. Proof of valuation of shares of stocks at the time of death, if applicable

  • For listed stocks - newspaper clippings or certification from the Stock Exchange
  • For unlisted stocks - Audited Financial Statements duly certified by an independent certified public accountant with computation of fair market value per share at the time of death

14. Proof of valuation of other types of personal property, if applicable

15. Proof of claimed tax credit, if applicable

16. CPA Statement on the itemized assets of the decedent, itemized deductions from gross estate and the amount due if the gross value of the estate exceeds two million pesos, if applicable

17. Certification of Barangay Captain for claimed Family Home

18. Duly notarized Promissory Note for "Claims against the Estate" arising from Contract of Loan

19. Accounting of the proceeds of loan contracted within three (3) years prior to death of the decedent

20. Proof of the claimed "Property Previously Taxed"

21. Proof of claimed "Transfer for Public Use"

22. Copy of Tax Debit Memo used as payment, if applicable

Additional requirements may be requested for presentation during audit of the tax case depending upon existing audit procedures.

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Tax Rates

Effective January 1, 1998 up to Present

If the Net Estate is

Over
But not Over
The Tax Shall be
Plus
Of the Excess Over
 
P 200,000.00
Exempt
   
P 200,000.00
500,000.00
0
5 %
P 200,000.00
500,000.00
2,000,000.00
P 15,000.00
8 %
500,000.00
2,000,000.00
5,000,000.00
135,000.00
11 %
2,000,000.00
5,000,000.00
10,000,000.00
465,000.00
15 %
5,000,000.00
10,000,000.00
 
1,215,000.00
20 %
10,000,000.00

Effective July 28, 1992 up to December 31, 1997 (Section 77 of the NIRC, as amended (Republic Act No. 7499)

If the Net Estate is

Over
But not Over
The Tax Shall be
Plus
Of the Excess Over
 
P 200,000.00
Exempt
 
 
P 200,000.00
500,000.00
 
5 %
P 200,000.00
500,000.00
2,000,000.00
P 15,000.00
8 %
500,000.00
2,000,000.00
5,000,000.00
135,000.00
12 %
2,000,000.00
5,000,000.00
10,000,000.00
495,000.00
21%
5,000,000.00
10,000,000.00
 
1,545,000.00
35 %
10,000,000.00

Effective January 1, 1973 to July 27, 1992 (Section 85 of the NIRC, as amended (Presidential Decree No. 69)

If the Net Estate is

Over
But not Over
The Tax Shall be
Plus
Of the Excess Over
 
P 10,000.00
Exempt
-
-
P 10,000.00
50,000.00
3%
-
P 10,000.00
50,000.00
75,000.00
P 1,200.00
4 %
50,000.00
75,000.00
100,000.00
2,200.00
5 %
75,000.00
100,000.00
150,000.00
3,450.00
10%
100,000.00
150,000.00
200,000.00
8,450.00
15 %
150,000.00
200,000.00
300,000.00
15,950.00
20%
200,000.00
300,000.00
400,000.00
35,950.00
25%
300,000.00
400,000.00
500,000.00
60,950.00
30%
400,000.00
500,000.00
625,000.00
90,950.00
35%
500,000.00
625,000.00
750,000.00
134,700.00
40%
625,000.00
750,000.00
875,000.00
184,700.00
45%
750,000.00
875,000.00
1,000,000.00
240,950.00
50%
875,000.00
1,000,000.00
2,000,000.00
303,450.00
53%
1,000,000.00
2,000,000.00
3,000,000.00
833,450.00
56%
2,000,000.00
3,000,000.00
-
1,393,450.00
60%
3,000,000.00

Effective September 15, 1950 to December 31, 1972 (Section 85 of the NIRC, as amended (Republic Act No. 579)

Estate and Inheritance Tax

If the Net Estate is

Over
But not Over
ESTATE
INHERITANCE
0
5,000.00
Exempt
Exempt
5,000.00
12,000.00
1.0%
2%
12,000.00
30,000.00
2.0%
4%
30,000.00
50,000.00
2.5%
6%
50,000.00
70,000.00
3.0%
8%
70,000.00
100,000.00
5.0%
12%
100,000.00
150,000.00
7.0%
14%
150,000.00
250,000.00
9.0%
16%
250,000.00
500,000.00
11.0%
18%
500,000.00
1,000,000.00
13%
20%
1,000,000.00
 
15%
22%

Effective July 1, 1939 to September 14, 1950 (Section 85 of the NIRC, as amended (Commonwealth Act No. 466)

Estate and Inheritance Tax

If the Net Estate is

Over
But not Over
ESTATE
INHERITANCE
0
3000.00
Exempt
1.0%
3,000.00
10,000.00
1.0%
10,000.00
30,000.00
1.5%
2.0%
30,000.00
50,000.00
2.0%
3.0%
50,000.00
80,000.00
2.5%
4.0%
80,000.00
110,000.00
3.0%
5.0%
110,000.00
150,000.00
3.5%
6.0%
150,000.00
190,000.00
4.0%
7.0%
190,000.00
240,000.00
4.5%
8.0%
240,000.00
290,000.00
5.0%
9.0%
290,000.00
350,000.00
5.5%
10.0%
350,000.00
420,000.00
6.0%
11.0%
420,000.00
500,000.00
6.5%
12.0%
500,000.00
600,000.00
7.0%
13.0%
600,000.00
720,000.00
7.5%
14.0%
720,000.00
850,000.00
8.0%
15.0%
850,000.00
1,000,000.00
8.5%
16.0%
1,000,000.00
1,200,000.00
9.0%
17.0%
1,200,000.00
1,500,000.00
9.5%
17.0%
1,500,000.00
 
10.0%
17.0%

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Procedures

The heirs/authorized representative/administrator/executor shall file the estate tax return (BIR Form 1801) and pay the corresponding estate tax with the Authorized Agent Bank (AAB), Revenue Collection Officer (RCO) or duly authorized Treasurer of the city or municipality in the Revenue District Office having jurisdiction over the place of domicile of the decedent at the time of his death, pursuant to Section 90(D) of the Tax Code, as amended.

In case of a non-resident decedent, with executor or administrator in the Philippines, the estate tax return shall be filed with the AAB of the RDO where such executor/administrator is registered or is domiciled, if not yet registered with the BIR.

For non-resident decedent with no executor or administrator in the Philippines, the estate tax return shall be filed with the AAB under the jurisdiction of RDO No. 39 South Quezon City.

The heir/authorized representative/administrator/executor shall submit all the applicable documentary requirements as prescribed in Annexes A-6 and A-6.1 of Revenue Memorandum Order (RMO) No. 15-2003 and proof of payment to the RDO having jurisdiction over the place of residence of the decedent or the RDO where the executor or administrator is registered, or RDO No. 39 – South, Quezon City, whichever is applicable. (part II, par.(4)of RMC No. 34-2013)

Payment of Estate Tax by installment - In case the available cash of the estate is not sufficient to pay its total estate tax liability, the estate may be allowed to pay the tax by installment and a clearance shall be released only with respect to the property, the corresponding/computed tax on which has been paid. (Section 9(F) of RR 2-2003)

One-Time Transaction (ONETT) taxpayers shall mandatorily use the eBIRForms in filing all of their tax returns. They may opt to submit their tax returns manually using the eBIRForms Offline Package in the Revenue District Office having jurisdiction over the place of domicile of the decedent at the time of his death or electronically through the use of the Online eBIRForms System. (Sec. 3(2) RR No. 6-2014) 

Please note that the time of payment will vary depending on the law applicable at the time of the decedent’s death.

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Deadlines

File the return within six (6) months from decedent's death. However, the Commissioner may, in meritorious cases, grant extension not exceeding thirty (30) days.

The Estate Tax imposed shall be paid at the time the return is filed by the executor or administrator or the heirs. However, when the Commissioner finds that payment on the due date of the Estate Tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years, in case the estate is settled through the courts or two (2) years in case the estate is settled extra-judicially.

In all cases of transfers subject to tax, or where, though exempt from tax, the gross value of the estate exceeds Twenty Thousand Pesos (P 20,000), Section 89 of the National Internal Revenue Code of 1997 (Tax Code), as amended, provides that the executor, administrator or any of the legal heirs, shall send a written notice of death to the Commissioner within two (2) months after the decedent’s death or within a like period after an executor or administrator qualify as such. (part II, par.(1)of RMC No. 34-2013)

Please note that the time of filing will vary depending on the law applicable at the time of the decedent’s death.

Extension of Time of Filing:

When the Commissioner finds that the payment of the estate tax or of any part thereof would imposed undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years in case the estate is settled through the courts, or two (2) years in case it settled extra-judicially.

Where the request for extension is by reason of negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer, no extension will be granted by the Commissioner.

If an extension is granted, the Commissioner or his duly authorized representative may require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond in such amount, not exceeding double the amount, not exceeding double the amount of tax and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance in the terms of extension.

The request for extension shall be filed with the Revenue District Officer (RDO) where the estate is required to secure its TIN and file the estate tax return. The application shall be approved by the Commissioner or his duly authorized representative.

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Related Revenue Issuances

Revenue Regulations (RR) No. 2-2003, 6-2013, 6-2014

Revenue Memorandum Order (RMO) Nos. 26-82, 31-82, 15-2003

Revenue Memorandum Circular (RMC) Nos. 1-98, 34-2013

Related Laws

Commonwealth Act No. 466 – effective July 1, 1939

Republic Act No. 579 – effective September 15, 1950

Republic Act No. 6110 – effective August 4, 1969

Presidential Decree No. 69 – effective January 1, 1973

Presidential Decree No. 1773 – effective January 16, 1981

Presidential Decree No. 1994 – effective January 1, 1986

Republic Act No. 7499 – effective July 28, 1992

Republic Act No. 8424 – effective January 1, 1998

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Codal Reference

Sec. 84 to Sec. 97 of the National Internal Revenue Code

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Frequently Asked Questions

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:

a) Real or immovable property, wherever located

b) Tangible personal property, wherever located

c) Intangible personal property, wherever located

  • For non-resident decedent/non-citizens:

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

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 which is 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.

9.  How do we determine the fair market value of the unlisted stocks? (RR NO. 6-2013) (Annex U)

In determining the value of the shares, the Adjusted Net Asset Method shall be used whereby all assets and liabilities are adjusted to fair market values. The net of adjusted asset minus the adjusted liability value is the indicated value of the equity. 

For purposes of this item, the appraised value of real property at the time of sale shall be the highest among the following:

       (a) The fair market value as determined by the Commissioner, or

       (b) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors, or

       (c) The fair market value as determined by Independent Appraiser. 

 

 

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