What will you do if you’ve just inherited a property from a long-lost relative? If you’re in a telenovela, you’ll probably shout for joy, gather your family, and move right in. However, before the happily ever after, you need to face reality. You need to settle the estate tax. What does this mean for you? If you have no idea what an estate tax is, then read this article to find out!
WHAT IS ESTATE TAX?
What is estate tax? Before you drown in legalese, we will attempt to explain to you what it is, in layman’s terms.
1. A LEGAL RESPONSIBILITY
A notable quote from Spiderman the movie goes, “with great power comes great responsibility.” The same is true with estate taxes. You have been given an inheritance, but for you to fully enjoy the gift, you must pay your dues to the government, to the Bureau of Internal Revenue, to be exact.
2. NOT A TAX ON THE PROPERTY
Let’s just clear this out, estate tax isn’t tax for the property itself. Rather, what you’re going to pay for is the right exercised by a deceased person in transmitting property as his or her inheritance.
As heirs, You will have to pay such tax when you receive the estate. On the other hand, a property tax is another legal responsibility based on a property’s value; regardless whether it is inherited or bought, or sold. Property Tax is called amilyar in Filipino, not Estate Tax.
3. IS ALSO CALLED INHERITANCE TAX
Simply put, estate tax is inheritance tax. Have you inherited something of value? Chances are, you have to pay inheritance taxes for them.
WHAT OBJECTS OF VALUE WILL FALL UNDER PHILIPPINE ESTATE TAX?
Contrary to popular belief, it's not merely a house, a residential lot, or legal residence that can be taxable under the estate tax law. The Bureau of Internal Revenue(BIR) lists the types of property that as heirs and beneficiaries, you may be expected to pay. Some of them are:
Real or immovable property, wherever located
Tangible personal property, wherever located
Intangible personal property, wherever located
This just means that your inheritance can not only be limited to a property or an estate. It can also include ownership of a business, assets such as vehicles, jewelry, or in some instances, shares and bonds from corporations.
WHO MUST PAY ESTATE TAXES?
Of course, the deceased person is not directly involved in the process of estate taxes. Rather, it is either the surviving spouse, or other heirs which are awarded, not just the properties, but with undue hardship of playing the roles as either the executor, administrator, and heir. If possible, a lawyer may help you process said prior taxable gifts.
WHERE SHOULD YOU PAY YOUR ESTATE TAX?
Since this is a form of tax, all dues would be paid to the Authorized Agent Banks (AAB) of the Revenue District Office that governs the properties involved. If in case of a non-resident decedent (meaning, the deceased person do not have a legal residence in the Philippines), transactions regarding its inheritance tax must be filed to the following:
The Office of the Revenue District Officer, Revenue District Office No. 39, South Quezon City; or
The Philippine Embassy or Consulate in the country where the decedent is residing at the time of his death.
WHEN SHOULD YOU FILE AN ESTATE TAX RETURN?
Upon the decedent’s death, estate tax return must be filed within six (6) months to one (1) year of its occurrence. The BIR Commissioner shall have the authority to grant, in meritorious cases, a reasonable extension not exceeding thirty (30) days for filing the return.
In some cases, the filing of said tax return can be extended. This depends on undue hardship encountered by the heirs or of the estate itself. However, the time of payment may be extended only from a minimum of two years and shall not exceed five years.
If you fail to pay your inheritance tax on time, the said estate will incur surcharges and penalties, which may make it hard for the heirs and beneficiaries to divide, distribute, or even sell said property.
HOW DO YOU FILE ESTATE TAXES?
If you’re not familiar with taxes, then this question may pose the biggest challenge in your journey towards legally acquiring your inheritance. But to give you an idea, here’s what you need to do so you can file your inheritance taxes.
Also Read:How to Compute Income Tax Philippines
DOCUMENTS NEEDED TO FILE YOUR ESTATE TAX
If you are the administrator, executor or heir who is not familiar with this process, it is wise that you seek the help of a legal professional. You can even head straight to a BIR office near you. To give you a head-start, prepare possible documents you may need for filing. Some of them are:
Certified true copy of Death Certificate
Taxpayer Identification Number (TIN) of the deceased and their heir
Affidavit of Self Adjudication, Deed of Extrajudicial Settlement of Estate, Court Order, or Sworn Declaration of All Properties of the Estate
Certified copy of the schedule of partition and the order of the court approving the same within thirty (30) days after the promulgation of such order, in case of judicial settlement
Proof of Claimed Tax Credit (if applicable)
Certified Public Accountant (CPA) Statement on the itemized assets of the deceased
Certification of the Barangay Captain for the claimed Family Home
Duly Notarized Promissory Note for “Claims Against the Estate” arising from Contract of Loan
Accounting of the proceeds of loan contracted within three (3) years prior to death of the deceased
Proof of the claimed Property Previously Taxed
Proof of the claimed Transfer for Public Use
Copy of Tax Debit Memo used as payment (if applicable)
As executor of the estate, you must file for Estate Tax Return (BIR Form 1801), along with the said documents, within one year of the deceased person’s death. Please bear in mind that the estate will also be assigned its own Tax Identification Number (TIN).
HOW TO COMPUTE YOUR ESTATE TAXES
How will you determine how much to pay for your inherited property? To determine the actual amount you must pay, you need to identify between gross and net estate. Gross estate refers to the overall total amount value the property and assets have before subtracting liabilities and taxes. Net estate refers to what’s left of the estate value once all allowable deductions have been applied.
Some deductions you can apply to your tax are as follow:
Medical expenses - incurred for the decedent prior to death
Funeral expenses - whether paid or unpaid, within one year of the decedent's death
Judicial expenses - expenses incurred in assessing the affairs of the estate or property
Standard deduction - a deduction amount of One million pesos can be deducted as additional deduction without need of substantiation
With the gross and net estate value defined, you can now compute your estate tax value. In the Philippines, estate tax is six (6) percent of the total net estate value. The amount you have derived from applying the variables will now be your estate tax value.
HOW TO FILE YOUR ESTATE TAX
Once you have your documents in order, you can now head to the Authorized Agent Bank at the Revenue District Office who has jurisdiction over the property of the deceased’s place to file your returns.
Philippine Estate Tax is a tax imposed when transmitting a property upon death of the owner and settled extra judicially
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As a seasoned expert in legal and financial matters, particularly in the realm of inheritance and taxation, I can provide comprehensive insights into the concepts discussed in the article.
Understanding Estate Tax
Legal Responsibility and Inheritance Tax:
Estate tax is a legal responsibility that comes with inheriting property. It's not a tax on the property itself but on the right exercised by the deceased in transmitting it. This means that as heirs, you must pay the tax upon receiving the estate. Importantly, it is distinct from property tax (amilyar), which is based on a property's value, whether inherited, bought, or sold.
Estate Tax vs. Inheritance Tax:
Estate tax is essentially inheritance tax. If you inherit something valuable, you are likely to pay inheritance taxes. This includes not only real estate but also business ownership, vehicles, jewelry, shares, and bonds from corporations.
Objects of Value Under Philippine Estate Tax:
The Philippine Bureau of Internal Revenue (BIR) specifies that taxable properties include real or immovable property, tangible personal property, and intangible personal property. This broadens the scope beyond just residential properties.
Parties Involved in Estate Tax Payment:
The deceased person is not directly involved in estate taxes. Instead, it is the surviving spouse or other heirs who take on the roles of executor, administrator, and heir. Legal professionals, like lawyers, can assist in processing taxable gifts.
Where to Pay Estate Tax:
Payments are made to Authorized Agent Banks (AAB) of the Revenue District Office governing the properties. For non-resident decedents, transactions are filed with the Revenue District Office No. 39, South Quezon City, or the Philippine Embassy/Consulate where the decedent resided.
Filing and Timing of Estate Tax Return:
The estate tax return must be filed within six months to one year of the decedent's death. Extensions, in meritorious cases, can be granted by the BIR Commissioner. Failure to pay on time results in surcharges and penalties.
Filing Estate Taxes: A Step-by-Step Guide
Documents Needed:
To file estate taxes, certain documents are crucial, including the certified true copy of the death certificate, taxpayer identification numbers (TIN), and affidavits or court orders related to the estate.
Computing Estate Taxes:
The computation involves distinguishing between gross and net estate values. Deductions, such as medical and funeral expenses, judicial expenses, and a standard deduction of one million pesos, can be applied. The estate tax rate in the Philippines is six percent of the total net estate value.
Filing Procedure:
As the executor, filing involves using Estate Tax Return (BIR Form 1801) along with the necessary documents. The estate is assigned its own Tax Identification Number (TIN).
Conclusion and Personal Finance Considerations
Considering the implications of inheritance taxes, investing in a residential property like Lumina Homes is highlighted. Securing a family home from Lumina ensures a lasting investment, and when passed to heirs, the estate tax becomes a worthwhile payment for a secure family future.
