Philippine Estate Taxes 2018

by | May 27, 2018 | Estate Law, Estate Taxes

Wondering how Philippine Estate Taxes will impact your inheritance?

This post answers those questions as I explain the current 2018 Philippine TRAIN estate taxes and provide sample computations.

Estate Tax Introduction

Under the 2018 TRAIN law, taxes are now 6% on an estate’s net proceeds.

Simply computed, this is:

Gross estate less Allowable Deductions equals

Net Proceeds multiplied by 6%

Seems simple, but the confusion lies in what makes up the gross estate and the allowable deductions.

Add in foreign holdings, dual citizenships, and foreigners and most people are ready to thrown in the towel.

While we don’t go into complicated estate tax issues here – and trust me, every case is different – I try to provide enough information to point you in the right direction.

What is a gross estate and how is it valued?

All property of citizens and residents constitute the gross estate.

For non-resident aliens however, gross estate are properties only located in the Philippines and include intangible personal property subject to the rule of reciprocity.

Now, here comes the hard part – how do you value the gross estate?

1 Land. Higher of the Fair Market Value given by the Commissioner or the provincial and city assessors.

2 Stock. As per the stock exchange but if not listed then it is the book value for unlisted common shares and the par value for unlisted preferred shares.

3 Club membership. Most recent bid price near date of death published in a newspaper.

So, now we have half the puzzle.

Allowable Deductions for Citizens

The missing half is what allowable deductions are.

The definition of these items are a bit more involved and need to be supported by substantial documentation.

Below is a simple summary of the allowed deductions.

There are some restrictions around some of the deductions and the details are best discussed with your lawyer.

  • Standard deduction of Php 5,000,000
  • Claims against the estate
  • Claims the estate might have against insolvent persons
  • Unpaid mortgages, taxes or casualty losses not covered by insurance or already claimed in an income tax filing
  • Previously taxed inherited property has exceptions at graduated rates if the previous decedent died within 5 years from the decedent in question. Other considerations are also applied.
  • Transfers to the Philippine Government for public use
  • Value of family home in excess of Php 10,000,000 will be taxed
  • Amount received by the heirs from the employer under R.A. 4917 Act Dealing with Retirement Benefits provided that the separation benefit is included as part of the gross estate.
  • Net share of the surviving spouse

Allowable Deductions for Non Resident Aliens

While the same rules for each deduction apply, not all deductions can be used by non-resident aliens.

It’s a shorter list.

  • Standard deduction of Php 500,000
  • Proportion of indebtedness his Philippine Gross Estate bears in relation to his entire Estate for
    • Claims against the estate
    • Claims the estate might have against insolvent persons
    • Unpaid mortgages, taxes or casualty losses not covered by insurance or already claimed in an income tax filing
  • Previously taxed inherited property has exceptions at graduated rates if the previous decedent died within 5 years from the decedent in question. Other considerations are also applied.
  • Transfers to the Philippine Government for public use
  • Net share of the surviving spouse

So that’s what the law says.

Remember that these are subject to considerations and you’ll have to work out with your accountant and lawyer.

Computation Unmarried Decedent, 30M Family Home

This is a fairly simple scenario.

Say your unmarried Filipino uncle has a family home of 30M and other property worth 14M.

He has some unpaid real estate taxes of 2M.

Simple so far.

Just remember that the 10M deduction is only used when for a family home and when that home is 10M and above.

If the family home is less than 10M, then the deduction is only up to the value of the home and not the entire 10M.

Computation Married Decedent, 30M Family Home

Say we have the exact same scenario in terms of property and cost as above.

The only difference between this and the above scenario is that there is a surviving spouse.

Based on the law, we need to reduce the estate by the surviving spouse’s portion.

So, below is how we calculate her portion.

Surviving Spouse share:

Surviving Spouse Share (Php Millions)

Estate tax is now calculated as:

Net Estate Calc (Php Millions) - Spouse Share

This works when the estate is composed of conjugal property.

If there are exclusive properties, then these have to be excluded from the surviving spouse’s calculation.

Exclusive properties are enumerated by the law and depend on what type of property regime governed at the time of your marriage.

6 Comments

  1. Brix

    Meron po bang time table ang pagbabayad ng Estate Tax na katulad ng pagpapayad po ng Capital Gain Tax?
    Ex.
    Kung namatay po ang land owner ng January 1, 2018 meron po bang dead line na 30 days para bayaran ang Estate Tax?
    Kung meron po, Saan at Ano po ibinabase yung start ng dead line para magbayad?

    Reply
    • Lawyers in the Philippines

      Yes, the normal deadline is that estate tax must be paid within a year’s time.

      If it exceeds this period, then penalties may apply.

      Reply
  2. Don Glen Abeleda

    Dear Atty, Is the notice of death still required by BIR? What if there is no estate left, is the estate tax return still required to be filed by BIR? What is the exemption now on filing estate tax return? Before Train Law it is 200K or less.
    Thanks in advance and God Bless you all!

    Reply
    • Lawyers in the Philippines

      Under the Train law, a notice of death is no longer needed.

      Everyone now has a 5M deduction. If a family home is owned, another 10M deduction applied to the deceased share can apply.

      The post above discusses it in some length as well as other considerations.

      Reply
  3. Jan

    Good day atty.! We are planning to buy a lot owned by a daughter (who is now married, a mother and father.their names appear on the title.the mother died last april 2018..now,how do we start the purchase process? will the daughter need to fix-up for the estate tax first before we enter into Deed of absolute sale? How to start the purchase? Thanks and God bless you.

    Reply
    • Lawyers in the Philippines

      Hi Jan:

      Estate taxes would need to be paid for the title to be transferred to your name.

      It is important that all the heirs agree to sell the property to you as a sale can be challenged by another heir who was not included in this deal.

      Reply

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