What you need to know about
ESTATE TAX
When our loved ones die, we go into a deep grief. Most of the time, we are at a loss for words. Whether the person has properties left behind, safe to say, succession and inheritance are the least of our worries. However, in some instances, we simply cannot keep on avoiding the paperwork that comes with a loved one’s passing. This includes probate of a will, if there is any, and payment of estate taxes.
What is estate tax?
Estate tax is a tax levied, assessed, collected and paid upon the transfer of the net estate of every decedent, whether resident or nonresident of the Philippines, to the heirs, based on the value of such net estate, by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated.
However, in the case of a nonresident decedent, who at the time of his death was not a citizen of the Philippines, only that part of the estate which is situated in the Philippines shall be included in his taxable estate, as computed in accordance with the estate tax rate imposed under Sec. 84 of the NIRC of 1997, as amended.
In essence, estate tax is a type of excise or privilege tax, because it aims to tax a privilege—that is, of shifting the economic benefits and enjoyment of property from the dead to the living. It is not a tax against the property of a decedent, nor is it a claim against the estate. It is simply the tax on the right to succeed to, receive, or take property by either testamentary or intestate succession. It must be remembered that the right to succeed is likewise not a natural right, but one that is provided by the statute. It is, just like estate tax, a privilege.
Estate tax accrues on the date of the death of a person. However, accrual of the tax is distinct from the obligation to pay the same. Upon the death of the person, succession instantly takes place and the right of the State to tax the privilege to transmit the estate vests instantly as well, upon his death.
What are the items included in determining the Gross Estate of a decedent?
Under prevailing law, the items to be included are the following:
a) decedent’s interest
b) transfer in contemplation of death
c) revocable transfer
d) property under a general power of appointment
e) proceeds of life insurance
f) prior interests
g) transfer for insufficient consideration
h) claims against insolvent persons i) unpaid mortgages
j) family home
Are there exclusions from the Gross Estate?
Yes. Some of these include but are not limited to the following: a) GSIS and SSS benefits, accruing by reason of death;
b) amounts received by veterans from the PH and US government, from the damages suffered during WWII;
c) property outside the Philippines of a nonresident alien; d) capital or exclusive property of the surviving spouse.
Filing and Payment of Estate Tax
Previously, it was required to file a Notice of Death. However, this was already repealed and is no longer required at present. Estate tax is required to be filed in all cases of transfers, subject to estate tax. It is also required regardless of the gross value of the estate, where the said estate consists of registered or registrable property. This includes real property, motor vehicle, shares of stock, or other similar property for which a clearance (eCAR) from the BOR is required as a condition precedent for the transfer of ownership thereof, in the name of the transferee, the executor, or the administrator, or any of the legal heirs of the decedent, as the case may be.
It should be noted that TRAIN Law has deleted the clause “or where though exempt from tax, the gross value of the estate exceeds Php200,000.”
The executor, or the administrator, or any of the legal heirs of the decedent must file the estate tax return. If there are none, any person in actual or constructive possession of any property of the decedent may file the estate tax return, pursuant to Sec. 90(A) of the Tax Code.
Effective January 1, 2018, the estate tax rate is set at 6%, based on the fair market value of the taxable net estate at the time of death of the decedent. In May 2021, the House committee on ways and means has recommended that the chamber House approve the Senate’s amendments to House Bill 7068, which would extend the estate tax amnesty application period by two years, or until June 14, 2023.
