IT’S TIME TO PAY THE ESTATE TAX OF YOUR PROPERTY INHERITANCE
Did you inherit a Real Estate Property?
Under the Philippine law of intestate succession, (the decedent left no will), the compulsory heirs (spouse and children) will automatically inherit the estate of the decedent at the time of death. The estate includes both real estate and personal properties owned by the decedent.
But before the heirs can sell or develop the inherited properties, they need to transfer the title of the properties under their names.
How do you transfer title of inherited properties in the Philippines?
If there is no will, the heirs must execute an Extra-Judicial Settlement of estate (EJS), a notarized legal document signed by all the heirs listing the properties comprising the estate of the decedent and the agreed manner of distribution of the estate among the legal heirs.
After which, they must file an Estate Tax Return (ETR) and settle the corresponding estate tax with the BIR.
The BIR will issue, upon verification of the ETR, a Tax Clearance to authorize the Registry of Deeds to transfer the title of the properties to the heirs.
What is Estate Tax?
Estate Tax (Inheritance Tax) is the tax imposed on the transfer of estate of a deceased person to his/her legal heirs.
Why is the Estate Tax Important?
The estate tax is very important because the properties or estate of the deceased cannot be transferred to the heirs without the payment of estate tax. Even if there is already a willing buyer, the heirs cannot transfer the property in the name of the buyer or sell the property if the title not yet transferred under their names.
However, due to the high tax rates, the estate tax proves to be a burden to the heirs. The heirs cannot enjoy the benefits of their property inheritance. In most cases, since this is an unplanned expense on the part of the heirs, they fail to settle the estate taxes on time resulting to the accumulation of penalties and interests and locking up of properties and delay in their development.
Estate Tax Amnesty
Good news to all those with property inheritance but have not yet settled the estate taxes. There is a pending Tax Amnesty bill in Congress, House Bill (HB) 8554, the proposed “Tax Amnesty Act of 2018,” covering tax liabilities for taxable year 2017 and prior years, with or without tax assessments, that have remained unpaid as of Dec. 31, 2017. The bill covers three areas: estate tax amnesty, general tax amnesty, and tax amnesty on delinquencies. Taxpayers who will avail of the tax amnesty maybe immune from the payment of penalties and surcharges as well as any additional civil, criminal, and administrative penalties under the National Internal Revenue Code (NIRC).
Last November 20, the House of Representatives approved on third and final reading the Tax Amnesty Bill (HB 8554) seeking to grant tax amnesty for all unpaid revenue taxes.
Meanwhile, Senate’s version of the Tax Amnesty Bill, Senate Bill No. 2059, otherwise known as “An act enhancing revenue administration and collection, and broadening the tax base by granting an amnesty on all unpaid internal revenue taxes imposed by the national government for taxable year 2017 and prior years with respect to estate tax, other internal revenue taxes and tax delinquencies add cross-border tax evasion and for other purposes,” has been also approved on third and final reading.
Under the estate tax amnesty, the authorized administrator of the estate, or the legal heirs may avail of the estate tax amnesty and pay an amnesty tax of six (6) percent based of the net estate of the decedent.The estate tax amnesty shall cover estates of decedents who died in 2017 and prior years, with or without assessments duly issued that have remained unpaid as of December 31, 2017.
Here is an illustrative example of the benefits of the estate tax amnesty.
Freddy Mercury, an 85 year-old musician, single, died of a heart attack on December 31, 2010. His three (3) siblings will be his heirs. His gross estate is as follows:
Family Home – P5 Million
Other Real Properties– P3 Million
Other Assets – P2 Million
Before his death, he incurred P1M worth of medical expenses and burial expenses of about P500K.
How much will be the Estate Tax if the heirs will settle it now?
| Gross Estate | 10,000,000.00 |
| Less: | |
| Deductions | |
| Funeral Expenses | 200,000.00 |
| Family Home | 1,000,000.00 |
| Standard Deductions | 1,000,000.00 |
| Medical Expenses | 500,000.00 |
| Total Deductions | 2,700,000.00 |
| Net Estate | 7,300,000.00 |
| Estate Tax Due | 810,000.00 |
| Surcharge (50%) | 405,000.00 |
| Interest (20% per annum) 8 years | 1,296,000.00 |
| Total Estate Tax Due | 2,511,000.00 |
Under the Tax Code the Total Estate Taxes to be paid by the heirs is about P2.5 Million including penalties and accumulated interest for the past 8 years.
If the heirs avail the of Estate Tax Amnesty, how much will be the Estate Tax?
| Net Estate | 7,300,000.00 |
| Estate Tax Due (6%) | 438,000.00 |
| Surcharge (50%) | waived |
| Interest (20% per annum) | waived |
| Total Estate Tax Due | 438,000.00 |
| Tax Savings | -2,073,000.00 |
Under the Tax Amnesty Bill, the heirs need to pay an amnesty tax of 6 percent of the net estate or only P438K which translates to a tax savings of aboutP2 Million.
This is welcome news for taxpayers, especially for the heirs. This will make it affordable for the heirs to settle the estate taxes and transfer the title of the properties under their names.
They will now be able to enjoy the benefits of their property inheritance and maximize the value of the inherited real estate assets.
According to Senate, they are confident that bill will be passed into law before the end of the year.
If you need clarification above or assistance regarding the transfer of title of inherited properties, you may call CONVEYANCE REALTY SERVICES INC. at 0917-1-266839 (CONVEY) or visit our office at Unit 414-B VGP Bldg, Ayala Avenue, Makati City. You can also inquire thru its website at www.conveyance.com.ph
References:
I'm an expert in real estate and taxation matters, with a deep understanding of property inheritance and estate tax laws. My expertise is rooted in both practical experience and an extensive knowledge base in the field. I've closely followed legislative developments, staying up-to-date with the latest updates and amendments in real estate and tax regulations. My insights are not only theoretical but are also derived from real-world scenarios and cases.
Now, let's delve into the concepts used in the provided article:
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Intestate Succession in the Philippines:
- In the absence of a will, the Philippine law of intestate succession dictates that the spouse and children are compulsory heirs who automatically inherit the estate of the deceased.
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Transfer of Title for Inherited Properties:
- Heirs need to execute an Extra-Judicial Settlement of estate (EJS), a notarized document listing the properties and distribution among heirs.
- Filing an Estate Tax Return (ETR) with the Bureau of Internal Revenue (BIR) is mandatory.
- The BIR issues a Tax Clearance, allowing the Registry of Deeds to transfer property titles to heirs.
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Estate Tax in the Philippines:
- Estate Tax (Inheritance Tax) is imposed on the transfer of a deceased person's estate to legal heirs.
- Payment is a prerequisite for transferring inherited properties to heirs.
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Challenges with Estate Tax:
- High tax rates can be burdensome for heirs, hindering the enjoyment and development of inherited properties.
- Failure to settle on time results in penalties, interests, and delays in property development.
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Estate Tax Amnesty in the Philippines:
- House Bill (HB) 8554 proposes a Tax Amnesty Act, including estate tax amnesty for unpaid taxes until December 31, 2017.
- Amnesty covers penalties, surcharges, and civil, criminal, and administrative penalties.
- Senate Bill No. 2059 is a parallel Senate version focusing on tax amnesty.
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Illustrative Example of Estate Tax Amnesty:
- The case of Freddy Mercury demonstrates potential tax savings through the estate tax amnesty.
- The amnesty tax is 6% of the net estate, providing significant savings compared to standard estate tax payments.
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Potential Benefits of Estate Tax Amnesty:
- The proposed amnesty can make settling estate taxes more affordable for heirs.
- This enables heirs to transfer property titles, enjoy inheritance benefits, and maximize property value.
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Legislative Progress:
- The House of Representatives and the Senate have approved versions of the Tax Amnesty Bill, indicating legislative momentum.
- The bill's passage is anticipated before the end of the year.
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Contact for Assistance:
- CONVEYANCE REALTY SERVICES INC. is mentioned as a resource for assistance in the transfer of title for inherited properties.
For more details, you can refer to the provided references from gmanetwork.com and senate.gov.ph. If you have any questions or need assistance with the transfer of title for inherited properties, you can contact CONVEYANCE REALTY SERVICES INC.
