Estate Tax Train Law in the Philippines

estate tax train law in the Philippines
Rosben Orbeso Murillo, CPA
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Are you wondering about the new Estate tax train law? Why should you be interested in these new rules regarding the imposition and payment of estate? If you’re an heir, administrator or trustor of the estate of the decedents you should read these changes before filing your estate tax. However, if you’re planning to buy real properties in the Philippines here are things that you should know before putting your cash into this investment.

What is the Estate Tax?

Estate is the property of the person during his death.  It includes properties acquired during or before the death of the decedent. This property could be tangible or intangible. To avoid the acquisition of wealth from the expense of others or avoiding paying taxes from the properties transfer to the heirs are called “estate tax“.

Estate Tax Rate under Train Law

Before the implementation of the train law, the estate tax rate is progressive rates. Progressive rate means that the tax rate is getting higher as the taxable estate is increasing. Here is the estate tax table before the train law.

The estate tax before train law makes it complicated in computing the estate tax. The estate tax rate will depend on the type the decedent However, the train law makes it easier and simpler in computing the estate tax. The estate tax train law makes the tax rate fixed regardless of the type of the decedent. New estate tax rate is six percent (6%) whether resident or non-resident of the Philippines based on the net estate of the decedent.



What is Included in the Estate Tax Train Law?

The gross estate of the decedent shall compose of all properties and interests or fruits acquired before or within the death of the decedent. It includes revocable transfers and transfers for insufficient considerations.

However, if a decedent is a non-resident alien the gross estate is composed of properties located within the Philippines. The intangible properties of the non-resident alien will be subjected to rule of reciprocity. Any amounts withdrawn from the bank accounts or deposits that were subjected to a 6% final withholding tax will be excluded from the gross estate.



What is the Valuation of Estate Tax Train Law?

General rule: Every property of the decedent is valued according to their fair market value at the time of his death.

Real Property

Any real property is to be valued at the fair market value as determined by the Commissioner or the fair market value (appraise value) by an assessor whichever is higher.

Shares of Stocks

The market value of the stocks will depend on whether listed or non-listed in the stock exchanges. If the stocks are listed, the fair market value is equal to the mean between the highest and lowest value at the date of death, unless otherwise market value at the date of his death.

Those stocks that are unlisted are based on their book value while preferred stocks are valued at par value. In computing the book value of the ordinary shares, the appraisal surplus shall not be included the same as to proffered stocks, if there is.

Annuity, Habitation, or Right to Usufruct

In determining the values, the probable life of the beneficiary with the latest basic standard mortality table must be considered.

What are the Allowed Deductions Estate Tax Train Law?

Standard Deductions

Under this TRAIN Law, the decedent can claim a standard deduction of 5,000,000.00 without any requirements and requisites. This amount is allowed as a deduction for the benefit of the decedent. This deduction is part of the special deductions.

Claims Against the Estate

These are the debts or obligations of the decedent still unpaid at the time of his death. The nature of the obligations must be enforceable against the estate of the decedent provided the following requisites:

  • A personal obligation of the deceased existing at the time of his death. Any obligations incurred by the heirs of the decedent can’t be enforced against the estate.
  • In good faith and for adequate and full consideration in money or money’s worth.
  • It must be enforceable either by law, contract or tort.
  • It must be condoned by the creditor or the action to collect from the decedent must not have prescribed.

All unpaid obligations or debts can be claimed as a deduction from the gross estate provided that the following documents or requirements are complied with or substantiated:

  1. Simple loan including advances. It must be duly notarized at the time of indebtedness was incurred except for those loans granted by any financial institutions.
  2. Unpaid obligations from the purchase of goods or services. Documents evidencing the goods or service such as sales invoice, delivery receipts or contract for the services agreed to be rendered must be duly acknowledged, executed and signed by the decedent as debtor and creditor, and statement of account must be given by the creditor as duly received by the decedent debtor.

Claims Against an Insolvent Person Under RA 10142.

Any claims of the decedent against an insolvent person can be allowed as a deduction provided that the amount is included as part of the gross estate.

Unpaid Mortgage, Taxes, and Casualties

Some properties of the decedent are diminished by the unpaid mortgage. Since some of these properties are included without deducting the unpaid mortgage, the law provides that any unpaid mortgage must be allowed as a deduction from the gross estate of the decedent.

Taxes accrued at the time of death which was unpaid will be treated as a deduction, except income taxes received after death, property taxes not accrued before his death and estate tax due for the transfer of his estate.

Any losses incurred during the settlement of the estate arising from fire, shipwreck, storms, robbery, theft, embezzlement and other casualties that were not compensated by any insurance.

Property Previously Taxed

Any properties received by the decedent either by donation of two living parties (inter vivos) or transfer of properties by a decedent (Mortis causa) within five years (5 years) prior to his death. These deductions shall be allowed only if the donor’s tax or the estate tax was paid.

The properties to be claimed as a deduction are valued below:

  • If the prior decedent died within one year (1) before the death of the decedent or properties transferred within one year shall claim the 100% of the value of the property.
  • If the prior decedent died more than one year (1) but not exceeding two years (2) before to the death of the decedent or properties transferred within two years shall claim 80% of the value of a property.
  • If the prior decedent died more than two years (2) but not exceeding three years (3) before to the death of the decedent or properties transferred within two years shall claim the 60% of the value of a property.
  • If the prior decedent died more than three years (3) but not exceeding four years (4) before to the death of the decedent or properties transferred within two years shall claim the 40% of the value of a property.
  • If the prior decedent died more than four years (4) but not exceeding five years (5) before to the death of the decedent or properties transferred within two years shall claim the 20% of the value of a property.



Properties Transferred for Public Use (TPU) or Donated to Government

All properties transferred for the use of the Government of the Republic of the Philippines or any political subdivision for public purposes only will be allowed as deductions from a gross estate of the decedent.

Family Home

The family home is a dwelling place where the husband, wife, and members of the family reside. The family home includes the land on which it is situated.

The decedent can deduct Ten Million Pesos Only (10,000,000.00) from his gross estate and the excess shall be subject to estate tax. This deducted is allowed provided the following conditions are met:

  • Certified by the Barangay Captain of the locality as an actual residential home of the decedent.
  • The fair market value must be part of the gross estate of the decedent.
  • The allowed deduction must be the fair market value at the time of his death but not exceeding the allowed amount of 10,000,000.00 whether exclusive or conjugal properties.

Amounts Received by Heirs under R.A. no. 4917

These are the amounts received by the heirs due to the death of the decedent under R.A. 4917. The amount received by the heirs can be claimed as a deduction if it was previously included as part of the gross estate of the decedent.

½ Share of the Surviving Spouse

The surviving spouse is entitled by the law the ½ share from the conjugal or community properties of the decedent. This net share of the surviving spouse will be excluded from the gross estate to ensure that only the decedent’s share will be taxed.

When and how to File Estate Tax Train Law?

The estate tax shall be filed within one (1) year from the death of the decedent. The Commissioner or any Revenue Officer may extend of time to file an estate tax return in a meritorious case, a reasonable extension, not exceeding thirty (30) days, for filing the return. Estate tax return shall be paid at the time the return is filed by the executor, administrator or the heirs.

Conclusions

The Estate tax train law gives a simpler computation of estate tax. Having a fixed estate tax rate of six percent (6%) will make it easier to compute the estate tax payable. For more updates about the new issuance of filing of estate tax train law in the Philippines, read the latest tax updates 2019. If you find this tax update interesting, don’t forget to rate and share.

-ONLINE FREELANCE Studied at Saint Paul School of Professional Studies Work Experiences: Taught both Accounting and Taxation for more than six (6) years. Former Tax CPA reviewer at SPSBL CPA review center.

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