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Estate Tax
A. Format of Computation
Exclusive Common Total
Gross Estate xxx xxx xxx
Less: Deductions (xxx) (xxx) (xxx)
Net Estate before share of surviving spouse xxx xxx xxx
Less: Share of surviving spouse --- (xxx) (xxx)
Net estate before special deductions xxx xxx xxx
Less: Special deduction
Family Home (xxx)
Standard deductions (xxx)
Medical expenses (xxx)
Taxable net estate xxx
Tax due (xxx)
Tax payable xxx
B. Estate tax rates
Over But not over The tax shall be Plus Of excess over
P 200, 000 Exempt P 200,000 500,000 0 5 % 200,000 500,000 1,000,000 P 15, 000 8% 500,000 2,000,000 5,000,000 135, 000 11% 2,000,000 5,000,000 10,000,000 465, 000 15% 5,000,000 10,000,000 1, 215, 000 20% 10,000,000 C. Gross Estate
1. Composition of Gross Estate
2 | E s t a t e T a x Exclusive properties of the
decedent
Included Included
Exclusive properties of the surviving spouse
Not Included Not Included
Common properties Included Included
D. Rule of reciprocity (Non- Resident Alien Decedent)
1. Properties covered by reciprocity
Intangible personal property situated in the Philippines owned by non-resident alien decedent
2. Basic Rules When there is reciprocity – The intangible property of non-resident alien situated n the Philippines are not included in the gross estate.
When there is no reciprocity – The intangible personal property of non-resident alien situated in the Philippines are included in the gross estate.
3. Properties considered situated in the
Philippines
The following shall be considered as situated in the Philippines (among others):
a. Franchise which must be exercised in the Philippines; b. Shares, obligations or bonds issued by any
corporation or sociedad anomia organized and constituted in the Philippines in accordance with its law;
c. Shares, obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines;
d. Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines;
e. Shares or rights in any partnership, business or industry established in the Philippines.
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E. Taxable Transfers
1. Examples of taxable transfer
a. Transfer in contemplation of death – motivated by thought of death may not be imminent;
b. Revocable transfer – the enjoyment may be altered, amended, revoked or terminated by the decedent; c. Transfer passing under general power of
appointment;
d. Transfer with retention or reservation of certain rights; e. Transfer for insufficient consideration.
2. Motives that preclude a transfer from the category of one made in contemplation of death
a. To relieve donor from the burden of management; b. To save income or property taxes;
c. To settle family litigate and un-litigate disputes; d. To provide independent income for dependents; e. To see the children enjoy he property while the
donor is alive;
f. To protect the family from hazards of business operations; and
g. To reward services rendered
F. Other Items
1. Proceeds of life insurance
Generally taxable, except when:
a. A third person is irrevocably designated as beneficiary;
b. The proceeds/benefits come from SSS or GSIS; c. The proceeds come from group insurance. When the designation of the beneficiary is not clear, the Insurance Code assumes revocable designation.
2. Claims against insolvent persons
a. The full amount of the claims is included in the gross estate.
4 | E s t a t e T a x from the gross estate.
3. Amount received by heirs under R.A. No. 4917
a. R.A. No. 4917 is entitled “An act Providing That Retirement of Employees of Private Firms Shall Not be Subject to Attachment, Levy, Execution, or Any Tax Whatsoever”.
b. The amount received by heirs from decedent’s employer as a consequence of death of the
decedent-employee is included in the gross estate of the decedent.
c. The amount above is also allowed as deduction from gross estate.
G. Exemptions/Exclusions
1. Exemptions of certain acquisitions and transmissions
a. The merger of usufruct in the owner of the naked title;
b. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary;
c. The transmission from the first heir, legatee or done in favor of another beneficiary in accordance with the desire of the predecessor; and
d. All bequest, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which inures to the benefit of any individual; Provided, however that not more than 30% of the said bequest, devises, legacies or transfers shall be used by such institutions for administration
purposes. 2. Exclusions from gross
estate under special
a. Amount received as war damages;
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laws c. Benefits from GSIS and SSS.
H. Determination of the Value of the Estate
1. Usufruct In accordance with the latest Basic Standard Morality Table, to be approved by the Secretary of Finance, upon the recommendation of the Insurance Commissioner. 2. Properties a. Generally – Fair market value at the time of the
decedent’s death;
b. Real Property – Higher between fair market value, BIR (zonal value) and fair market value, Provincial and City assessor (assessed value).
c. Personal Properties – recently purchased – Purchase price
Nor recently purchased – Pawn value x 3
d. Securities (shares of stock)
1. Traded in the local stock exchange – Mean between the highest and lowest quotations on valuation date or on a date nearest the valuation date;
2. Not traded in the local stock exchange
a. Common (ordinary) shares – Book value on valuation date or on a date nearest the valuation date;
b. Preferred (preference) shares – Par value
I. Gross Estate of Marries Decedents
1. Conjugal Partnership of Gains (Relative Community of Properties) Exclusive properties Conjugal Properties
6 | E s t a t e T a x into the marriage as
either of the spouse’s own;
marriage at the expenses of the common fund, whether the acquisition be or for the partnership, or for only one of the spouses;
b. Properties acquired by gratuitous (or lucrative) title during the marriage;
b. Properties obtained from labor, industry, work or profession of either or both of the spouses;
c. Properties acquired by right of
redemption or by exchange with other property belonging to only one of the
spouses;
c. The fruits, industrial or civil, due or received during the marriage from the common property, as well as the net fruits from the exclusive property of each spouse;
d. Properties acquired with exclusive money of either spouse.
d. The share of either spouse in the hidden treasure which the law awards to the finder or owner of the property where the treasure is found;
e. Properties acquired through occupation such as fishing and hunting;
f. Livestock existing upon the dissolution of the partnership in excess of the number of each kind brought to the marriage by either spouse;
g. Properties acquired by chance, such as winnings from gambling and betting.
2. Absolute Community of Properties a. Properties acquired during
the marriage by gratuitous (or lucrative) title by either spouse, and the fruits as well as the income thereof if any, unless it is specifically
a. All properties owned by spouses at the time of the celebration of marriage or acquired thereafter.
7 | E s t a t e T a x provided by the donor,
testator or grantor that they shall form part of the
community;
b. Property for personal and exclusive use of either
spouse, however, jewelry shall form part of the community property,
c. Property acquired before the marriage by either spouse who has legitimate
descendants by a former marriage, and the fruits as well as the income, if any, of such property.
J. Deductions Allowed to Estate
1. Ordinary Deductions
Items of Deductions Resident or Citizen Decedent Non-Resident Alien Decedent a. Expenses, losses,
indebtedness, taxes, etc. (ELITE)
Deductible Deductible:
Philippine GE/ Entire GE x ELITE
b. Transfer for public use Deductible Deductible c. Property previously taxed (vanishing deductions) Deductible Deductible d. Share of surviving spouse Deductible Deductible 2. Special Deductions
8 | E s t a t e T a x Items of Deductions Resident or Citizen Decedent Non-Resident Alien Decedent
a. Family Home Deducible Not Deductible
b. Standard Deduction Deducible Not Deductible
c. Medical expenses Deducible Not Deductible
d. Amount received by heirs under R. A. No.4917
Deducible Not Deductible
K. Deductions Amplified
1. Expenses, Losses, Indebtedness, Taxes, etc. (ELITE) Deductions Requisites for
Deductibility
Amount Deductible Deducted From a. Funeral expenses a. Incurred up to the time of internment; b. Not borne or defrayed by relative and friends; c. Supported by receipts or invoices or other evidence.
Actual funeral expenses or 5% of gross estate whichever is lower, but in no case to exceed P200, 000 Common Property b. Judicial expenses a. Incurred during the settlement of the estate; b. Incurred not beyond the last day prescribed by
Expenses incurred in: a. Inventory-taking of assets comprising the gross estate; b. Their Common property
9 | E s t a t e T a x law, or the
extension thereof, for filing of estate tax return;
c. Incurred for the benefit of the estate; d. Supported by receipts or invoices or by a sworn statement of account issued and signed by the creditor administration; c. Payment of debts of the estate; d. Distribution of the estate
among the heirs
c. Losses a. Incurred during the settlement of the estate;
b. Arising from fires, storms, shipwreck, or other casualties, or from robbery, theft or embezzlement; c. Not compensated for by insurance or otherwise; d. Not claimed as deduction for income tax purposes in an income tax return; e. Incurred not later
than the last day
Value of the property lost Common property if connected to common Exclusive property if connected to exclusive
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of the estate tax d. Indebtedness (claims against the estate) a. The liability represents a personal obligation of the deceased existing at the time of his death;
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; e. At the time the
indebtedness was
Debts or demands of pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money terms Common property if connected to common Exclusive property if connected to exclusive
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instrument was notarized; and f. If the loan was
contracted within three (3) years before the death of the decedent, the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan
e. Unpaid Taxes The tax must have accrued before the date of the decedent
Unpaid taxes that accrued before the decedent’s death but not including:
a. Any income tax upon received after the death of the decedent, or
b. Property taxes not accrued before his death, c. Or any estate tax
Common property if connected to common Exclusive property if connected to exclusive f. Claims against insolvent persons a. Value of claims is included in the gross estate; b. The incapacity of
Claims that are not collectible
Common property if connected to common
12 | E s t a t e T a x the debtors to pay their obligation is proven Exclusive property if connected to exclusive g. Unpaid mortgage
a. The fair market value of the mortgaged property without deducting the mortgage indebtedness been initially included as part of the gross estate; b. the mortgage indebtedness was contracted in good faith and for an adequate and full consideration Amount of unpaid mortgage Common property if connected to common Exclusive property if connected to exclusive
2. Transfer for Public Use
13 | E s t a t e T a x The transfer must be
testamentary in character or by way of donation mortis causa executed by the decedent before his death
Amount of all bequests, legacies, devises, or transfers to or for the use of the Government of the Philippines, or any political subdivision or exclusively public purpose
Exclusive property
3. Property previously taxed (vanishing deductions) Requisites for deduction Rates (based
on time gap)
Format of computation a. The date of death of the
present decedent must not exceed 5 years from the date of death of the prior decedent or date of donation.
b. The property can be identified as the one received from prior decedent, or from the donor, or the property acquired in exchanged for the original property so received.
c. The property must have formed part of the prior decedent’s gross estate situated in the Philippines or been included in the total amount of the gifts and donor made within 5
100%- if not more than 1 year
80% - if more than 1 year but not more than 2 years 60% - if more than 2 years but not more than 3 years 40% - if not more than 3 years but not more than 4 years
20% - if not
Value to Make P xxx Less: Mortgage paid by
present decedent
(xxx) Initial Basis P xxx Less: Proportional
deduction (Initial basis /gross estate x deductions) (xxx) Final Basis P xxx Rate XXX Vanishing Deduction P xxx Notes:
1. Under conjugal partnership of gains vanishing is a
deduction from exclusive property.
2. Under absolute community of property, vanishing
14 | E s t a t e T a x years prior to the present
decedent’s death.
d. The estate tax must have been finally determined and paid by the prior decedent or the donor’s tax must have been paid by the donor.
e. No vanishing deduction was allowed in determining the value of the net estate of the prior decedent
more than 4 years but not more than 5 years
deduction may be deducted from exclusive property or community property.
4. Family Home – The family home, constituted jointly by the husband and the wife or by an unmarried head of the family, is the dwelling house where they and their family reside and the land on which it is situated.
Conditions for the allowance of family home deduction
Amount deductible 1. The family home must be the
actual residential home of the decedent and his family at the time of his death, as certified by the Barangay Captain of the locality the family home is situated
1. Exclusive property
Full value included in the gross estate 2. Conjugal/
community property
One-half (1/2) of the value included in the gross estate 3. Partly exclusive
property, partly conjugal/commu nity
Exclusive part (full) Conjugal /
community part ( ½ x value)
2. The total value of the family home must be included as part of the
Note: In all three (3) cases, the maximum amount of family home deduction is P 1, 000,
15 | E s t a t e T a x gross estate of the decedent; and
3. Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate, or to the extent of the decedent’s interest (whether
conjugal/community or exclusive property), whichever is lower, but not exceeding P1, 000, 000.
000
5. Standard Deduction
Amount deductible P 1, 000,000
6. Medical Expenses
Requisites for deduction Amount deductible 1. Incurred within one (1) year before
the death of the decedent; 2. 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 supporting documents
All medical expenses incurred (whether paid or unpaid), provided the total amount does not exceed P 500, 000.
Examples of medical expenses: 1. cost of medicines;
2. Hospital bills; 3. Doctor’s fees. 7. Amount received by heirs under R.A. No. 4917
Requisites for deduction Amount deductible The amount of the separation benefits is
included as part of the gross estate of the
Any amount received by the heirs from the decedent’s employer as a consequence of
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decedent the death of the employee-decedent.
8. Share of surviving spouse
Gross conjugal/ community properties P xxx
Less: Conjugal/ community deductions (xxx)
Net conjugal/ community properties (NCP) P xxx
Share of surviving spouse (1/2 x NCP) P xxx
L. Tax credit for estate tax paid to a foreign country
1. Entitled to tax credit
Resident or citizen decedents 2. Deducted from
estate tax due
The estate tax imposed in the Tax Code shall be credited with the amounts of any estate tax imposed by the authority of foreign country.
3. Limitations on credit
Only one foreign country is involved
Net estate, foreign / entire net estate x Philippine estate tax
Two or more foreign countries are involved Limit (a) >per foreign country
net estate, per foreign country / entire net estate x Philippine estate tax due
Limit (b) > by total
Net estate (all foreign countries) / entire net estate x Philippine estate tax due
M. Administrative provisions
17 | E s t a t e T a x a. Notice of death is
required to be filed
1. In all cases of transfer subject to tax;
2. Where, though exempt from tax, the gross value of gross estate exceeds P20, 000
b. Who will file? 1. Executor; 2. Administrator;
3. Any of the legal heirs c. When is notice
filed?
Within 2 months after the decedent’s death, or within like period after qualifying as such executor or administrator.
