TRANSFER

TAXES
 What IS TRANSFER TAX?

A Transfer Tax is any tax levied on the

passing of title to property.
Difference between income and transfer
tax:
INCOME TAX TRANSFER TAX
Tax on: income Transfer of
property
Rates are: Higher: Lower:
Individuals - 5% to Estate tax – 5% to
32% 20%
Corporations – 32% Donor’s tax - 2% to
15%
Exemptions more lesser
MODES OF TRANSFERRING
OWNERSHIP:
 OCCUPATION
Things appropriable by nature which are
without an owner, such as animals that
are the object of hunting and fishing,
hidden treasure and abandoned
movables, are acquired by occupation.
(Art. 713 of the Civil Code)
 PRESCRIPTION of actions

Art. 1139. Actions prescribe by the

mere lapse of time fixed by law.
 INTELLECTUAL CREATION

Art. 721. By intellectual creation, the following persons

acquire ownership:
(1)The author with regard to his literary, dramatic,
historical, legal, philosophical, scientific or other work;
(2)The composer; as to his musical composition;
(3)The painter, sculptor, or other artist, with respect to
the product of his art; and
(4)The scientist or technologist or any other person with
regard to his discovery or invention. (n)
 DONATION
Donation is an act of liberality whereby a
person disposes gratuitously of a thing or right
in favor of another, who accepts it. (Art. 725,CC)
When a person gives to another a thing or right
on account of the latter’s merits or of the
services rendered by him to the donor, provided
they do not constitute a demandable debt, or
when the gift imposes upon the donee a burden
which is less than the value of the thing given,
there is also a donation. (Art. 726,CC)
 SUCCESSION
Succession is a mode of acquisition
by virtue of which the property,
rights and obligations to the extent
of the value of the inheritance, of a
person are transmitted through his
death to another or others either
by his will or by operation of law.
(Art. 774,CC)
ESTATE TAX
 What is ESTATE TAX?
Estate Tax is a tax on the right of the deceased
person to transmit his/her estate to his/her lawful
heirs and beneficiaries at the time of death and on
certain transfers, which are made by law as
equivalent to testamentary disposition.
It is a tax imposed on the privilege of transmitting
property upon the death of the owner. The Estate
Tax is based on the laws in force at the time of
death notwithstanding the postponement of the
actual possession or enjoyment of the estate by
the beneficiary.
When to file ETR (BIR Form No. 1801)?

If the death occurred:

JANUARY 1, 1998 GROSS ESTATE EXCEEDS

Prior P3,000

On or After P20,000
 What is SUCCESSION?
Succession is a mode of acquisition by
virtue of which the property, rights and
obligations to the extent of the value of
the inheritance, of a person are
transmitted through his death to another
or others either by his will or by operation
of law. (Art. 774,CC)
 When is the right of succession
transmitted?

The rights to the succession are

transmitted from the moment of the
death of the decedent. (Art. 777, CC)
 WHAT ARE THE TYPES OF SUCCESSION?
Art. 778. Succession may be:
TESTAMENTARY LEGAL MIXED
Valid Will Yes None Partial
Estate called Testate Intestate Mixed
Acceptor Devisee/Legatee Heir Heir

Succession By will By operation of Partly by will,

law part by law

Note: The term legatee is often used to denote those who inherit
under a will without any distinction between real property and
personal property, but technically, a devisee inherits real
property under a will.
 Who is a decedent?
Is the person whose property is
transmitted through succession, whether
or not he left a will. If he left a will, he is
also called the testator. (Art. 775, CC)
What are the types of decedent and
what are included in their GE?
FILIPINO AND RESIDENT NON-RESIDENT ALIEN
ALIEN DECEDENT DECEDENT

All real, • All real and tangible

personal property
tangible/intangible situated in the
personal property Philippines.
wherever situated. • Intangible personal
property with a situs in
the Philippines unless
exempted on the basis of
reciprocity.
GE INCLUSIONS:
• Decedent’s present and prior interest
• Transfer in contemplation of death
• Revocable transfer
• Transfer under GPA
• Proceeds of Life Insurance with
Revocable Beneficiary
• Transfers for insufficient consideration
• Retirement and Separation Pay (RA
4917)
DECEDENT’S INTEREST
To the extent of the interest in property
of the decedent at the time of his death.
 Transfers in Contemplation of Death

Transfers impelled by the thought of an

impending death, without regard of the state of
health of the transferor. The ff. are considered
in contemplation of death:
•Transfer take effect after the death.
•Donation take effect after the death.
 Revocable Transfers
A transfer whereby the terms of enjoyment of
the property may be altered, amended, revoked
or terminated by the decedent alone or in
conjunction with any other person, or where
any such power is relinquished in the
contemplation of the decedent’s death.
Transfers for Insufficient Consideration

Amount includible in the GE is the excess of the

FMV at the time of death over the value of
consideration received.
 Property Passing under GPA
What is General Power of Appointment?
The power to designate, without restrictions, the persons
who shall receive, succeed to, possess or enjoy the
property or its income received from the estate of a prior
decedent.

How is GPA exercised?

GPA is exercised by:
•Will
•Deed executed in contemplation of death
•Deed during an executors lifetime.
 The DIFFERENCE between SPA and GPA
GPA SPA
•Powers Covers a wide spectrum of Contains language that
acts that an attorney-in-fact authorizes one or a few acts,
may perform on a often related to a specific
principal’s behalf and is event.
often practically unlimited
in nature.
•Specificity Make a broad statement Limited must describe the
regarding transactions. action to be performed and
be more specific.
•Activation May establish a date when Generally limited and may
and it becomes effective such as establish an expiration date.
springing date.
Expiration
 Proceeds of LIFE INSURANCE
Will form part of the GE only if when:

Revocable/Irrevocable Beneficiary is the estate,

executor, administrator.
Revocable only Others
 Retirement and Separation Pay
(Section A,7 of NIRC)
These are amounts received by the heirs from
the decedent’s employer as a consequence of
death, sickness or physical disability.
HOWEVER, the whole amount received shall be
treated as an allowable deduction against the
Estate.
 What will be used as basis in the
valuation of property?
REAL PROPERTY FMV as determined by the CIR, or FMV
fixed by assessors
No zonal value: FMV in latest tax
declaration
SHARES OF STOCK Listed shares – average of the highest and
lowest quotation at the date of death, if
not available, date nearest to death.
Unlisted shares – Common stocks: Book
Value
Preferred stocks: Par
value
PERSONAL FMV
 GE EXCLUSIONS
• First P200,000 of Net Estate;
• Merger of usufruct in owner of naked title;
• Fideicommisary substitution;
• Transmission from first heir/legatee/ donee in favor of another
beneficiary, in accordance with the predecessor’s will;
• Bequests/devices/legacies/transfers to social
welfare/cultural/charitable institutions;
• GSIS/SSS proceeds/ benefits
• Proceeds of life insurance where the beneficiary is irrevocably
appointed or under a group insurance taken by employer (not
taken out upon his life)
• War damage payments
• Transfer of property to the National Government or to any of its
political subdivisions
• Separate property of the surviving spouse
• Acquisition and/or transfer expressly declared as not taxable or
bona fide sales
 When is a Merger of Usufruct in the
Owner of the Naked Title?
Is the event that the Usufructuary and the Owner
of the Naked Title are vested in one person.

•Usufruct is a right granted to enjoy the fruits or

benefits of something owned by another person.
•Owner of the Naked Title refers to the person who
has ownership, control or title of the property
under the terms and conditions of a Usufruct
Agreement.
•Usufructuary refers tot eh person enjoying the
benefits or fruits of a thing not belonging to
him/her
 Merger of usufruct in the owner of
the naked title
Illustration:
A is the owner of the fishpond, has two sons B and
C. C his the right of usufruct of the fishpond but B
will have the title of the fishpond upon A’s death.
When A died – the fishpond will be included in GE
and title passes to B. However, C shall have the
possession.
In case C died – transfer of possession is exempt
from estate tax.
Transmission of Legacy by the Fiduciary Heir to
the Fedeicommissary
• Legacy is a personal property while Device is
real property made as gift or transferred thru
testamentary disposition.
• Fiduciary heir is the first heir to the property
while Fedeicommissary is the second heir of
the property and relationship of the second
heir to the first heir must only be one degree.
 What is Fedeicommissary Substitution?

This is where the property is transferred from

the first heir to another beneficiary in
accordance with the desire of the predecessor
decedent.
FEDEICOMMISARY SUBSTITUTION
Illustration:
A dies and entrusted B, fiduciary, to
transfer the ownership of a lot to C,
fedeicommisary, when C reaches legal age.
The transfer from A to B is subject to
estate tax but the transfer from B to C not
subject to estate tax.
 Transfers to Social Welfare, Cultural
and Charitable Institutions
PROVIDED:
Not more than 30% of the total amount
transferred is used for administrative
purposes.
 Deductions:
FILIPINO AND RESIDENT ALIEN NON-RESIDENT ALIEN
• Expenses, losses,
indebtedness, taxes, etc.
• Expenses,
(ELIT-FJCCULT: funeral, losses,
judicial, claims vs.
estate/insolvents, mortgages, indebtedness,
taxes, losses)
• Transfer for public use
taxes, etc.
• Vanishing deduction (FJCCULT)
• Family home
• Standard deduction • Transfer for
• Medical expenses
• Retirement benefits received
public use
by heirs under RA 4917 • Vanishing
• Share of Surviving Spouse
deduction
 NRA ELIT Formula:
Formula:
Phil. Gross Estate X World ELIT
World Gross Estate
FUNERAL EXPENSES are costs
which are actually incurred in
connection with the interment or
burial of the deceased.
 Funeral expenses:
Deductible Non-deductible
 Mourning apparel  Expenses incurred after
 Wake Expenses interment
 Communication and  Portion of funeral expense
publication defrayed by relatives and
 Cost of burial plot, friends
tombstones, monuments,
and mausoleum
 Interment/cremation fees
and charges
 All other expenses incident
to the interment
 Funeral expenses:
The amount deductible is the lowest among the
following:
•actual funeral expenses
•5% of the gross estate
•P200,000

Requisites to be Deductible:
•The amount paid must come from the Estate.
•The expense must be substantiated with receipts.
•The expense must cover activities up to the day of the
burial.
•Expenses paid by relatives or out of contributions are
not deductible.
JUDICIAL EXPENSES are expenses incurred
during the settlement of the estate but not
beyond the last day prescribed by law, or the
extension thereof, for the filing of the estate
tax return.

Requisites to be deductible:
•Should be taken from the Estate.
•Should be for the benefit of the Estate.
•Expenses should be either thru judicial or
extra-judicial proceedings.
 judicial expenses:
• Executor/administrator fees
• Attorney’s fees
• Court fees
• Accountant’s fees
• Appraiser’s fees
• Clerk hire
• Cost of preserving and distributing the estate
• Brokerage fees for selling estate
• Expenses for extra-judicial settlement
 Claims against:
ESTATE - debt/demand of a INSOLVENT PERSONS
pecuniary nature which
could have been enforced
against the deceased in his
lifetime and could have
been reduced to simple
money judgments.
Requisites: Requisites:
•Instrument must be •Included in gross estate
notarized. •Debtors incapacity is
•Contracted within 3 years proven
before death.
•Statement showing
disposition of loan.
 UNPAID MORTGAGE
Requisite:
•Value of the property included in the Gross
Estate
•Deduction shall be limited to the extent of the
mortgage contracted
•In the event, that interest of the decedent on
mortgaged property is less than its full
amount, the amount of unpaid mortgage shall
be proportionately reduced.
 TAXES
Deductible: Not deductible:

taxes due at the time of  income tax on income

death received after death
 property taxes not
accrued before death
 estate tax
 LOSSES

Requisites:
•Arising from calamity, or casualty;
•Not compensated by insurance;
•Not claimed as deduction in an ITR of the
taxable estate;
•Occurring during the settlement; and
•Occurring before the last day for the payment
of the estate tax
 Transfers for public use
Requisites:
•Value in included in gross estate
•Disposition is in a last will/testament
•To take effect after death
•In favor of the government, or any political
subdivision, also contemplates
bequests/devices/transfers to social welfare,
cultural and charitable institutions
•For public purposes.
 FAMILY HOME
It is the dwelling house, including the land it is
situated, where the family reside as certified
by the Barangay Captain of the locality.
Requisites:
the decedent’s family home.
certified to by the barangay captain of the locality
where it is located.
Maximum of P1,000,000
Total value must be included in the Gross Estate
 Medical expenses
This will cover hospitalization of the decedent
prior to the time of his/her death, and includes
payments for hospital room, laboratory
examination, doctor’s professional fees, cost of
medicine and other related medical expenses.
Requisites to be deductible:
•incurred within one year prior to his death
•Substantiated with receipts
•Maximum of P500,000
 Vanishing Deductions
Are deductions allowed for properties which are already
subjected to transfer taxes. The purpose is to minimize the effect
of double taxation within a short period of time since the same
property will be again subjected to tax in the form of estate tax.

Requisites to be deductible:
the present decedent died within 5 years from prior transfer.
property must be located in the Philippines.
property formed part of the taxable estate/taxable gift.
estate tax/donor’s tax must have been paid.
property must be identified as the one received from the prior
decedent, or something acquired in exchange therefor.
No vanishing deduction was allowed to the estate of the prior
decedent.
 Computing for Vanishing Deduction
Time Interval in Custody of Present Decedent
Percentage Exceeding Not Exceeding
100% 1 year
80% 1 year 2 years
60% 2 years 3 years
40% 3 years 4 years
20% 4 years 5 years
0% 5 years
Amount Received under R.A. No. 4917
Any amount received by heirs from the
decedent’s employer as a consequence of death
of decedent in accordance with RA 4917. This
may include:
•Retirement benefits under a reasonable benefit
plan.
•Separation benefits on account of employee’s
death, sickness, and other forms of physical
disability.
Amount Received under R.A. No. 4917
Requisites to be Deductible:
•Employer’s retirement plan must be
reasonable.
•Decedent employee has been in service for at
least 10 years.
•Decedent employee must not be less than 50
years old.
•The benefits shall only be availed once.
•The amount benefited shall be included as part
of the GE.
 Standard Deduction
P1,000,000 without need of substantiation.
NET SHARE OF SURVIVING SPOUSE
What are the property relationships of
married persons?
1.Conjugal Partnership of Gains
2.Absolute Community of Property
3.Complete Separation of Properties
 What is the CPG?
This is the property regime that in the absence
of an agreement, on marriage celebrated
before August 3, 1988, the GE will include:
• Exclusive properties of the decedent
• Conjugal properties
 What are Exclusive Properties of
Spouses under CPG Regime?
• Properties owned before marriage;
• Properties acquired by inheritance/gift during
marriage; and
• Properties acquired paid from exclusive
property.
THEREFORE, under CPG, included properties are
those acquired by after the marriage.
 What is ACP?
In the absence of any agreement, the property
regime of the spouses after August 3, 1988 shall
be ACP, and shall compose of:
•Exclusive properties of the decedent, and
•Community properties. (properties
owned/acquired before and during marriage)
 What are Exclusive Properties of
Spouses under ACP Regime?
• Properties acquired by inheritance/gift during
marriage and the income of such property unless
expressly provided by the donor/grantor;
• Properties for exclusive and personal use of either
spouse, except jewelry; and
• Properties owned before marriage who have
legitimate descendants from former marriage.
THEREFORE, under both regimes, properties acquired
during the marriage that cannot be clearly identified,
shall fall under ACP or CPG.
 What is CPP?
Under this regime, before/during the
celebration of marriage, all properties including
fruits/income acquired during the marriage shall
be an exclusive property.
 Estate tax Formula:
Gross Estate (Sec. 85)
Less: (1) Deductions (Sec. 86)
(2) Net share of the SS in the CP
Net Taxable Estate
X Tax rate (Sec. 84)
Estate Tax due
Less: Tax Credit [if any] (Sec. 86[E] or 110[B]
Estate Tax Due, if any
 What is Estate Tax Credit?
Is a remedy against international double
taxation to minimize the onerous effect of
taxing the same property twice.

WHO MAY AVAIL?

Only the estate of a citizen or resident alien
at the time of the death can claim for any
estate taxes paid to a foreign country.
 What amount of estate tax credit may
be claimed?
ONE COUNTRY MORE THAN ONE COUNTRY

THE LOWER AMOUNT BETWEEN:

Limit A. Whichever is lower between:

• Estate tax paid to the foreign country •Estate tax paid to foreign country
•NTE, foreign country X Phil. estate tax
• NTE, foreign country X Phil.ET NTE, world
NTE, world  
Limit B. Whichever is lower between:
•total estate taxes paid to all foreign
(NTE - Net Taxable Estate)
countries
•NTE outside Phil. X Phil. estate tax
NTE, world
 Effective January 1, 1998 up to Present
The Tax Of the Excess
Over But not Over Plus
Shall be Over
  P 200,00.00 Exempt    
P200,000.00 500,000.00 0 5% P 200,000.00
500,000.00 2,000,000.00 P 15,000.00 8% 500,000.00

2,000,000.00 5,000,000.00 135,000.00 11% 2,000,000.00

10,000,000.0
5,000,000.00 465,000.00 15% 5,000,000.00
0
10,000,000.00   1,215,000.00 20% 10,000,000.00
 Who are liable to pay estate tax?
PRIMARILY Estate thru the
LIABLE: administrator or executor.
When there are 2 or more
administrators or
executors, they are
solidarily liable.
SECONDARILY The heir or beneficiary up
LIABLE: to the point of
inheritance.
 FILING OF NOTICE OF DEATH
WHO FILES: The executor, administrator
or any of the legal heirs
WHEN TO FILE: Within 2 months after
decedent’s death, or within a
like period after qualifying
executor or administrator
TO WHOM FILED: CIR
 Filing of Estate Tax Returns
WHEN TO FILE: Within 6 months from decedent’s death,
except in meritorious cases, the CIR may grant
extension of not more than 30 days.

MANDATORY • Transfers subject to estate tax.

FILING: • GE exceeds P200,000.
• Regardless of value when BIR Clearance is
needed for valid transfer of ownership.

WHERE TO FILE: • AAB

• RDO
• City/Municipal Treasurer
• If there is no legal residence, the CIR
• Philippine embassy/consulate
WHAT BIR FORM: • 1801
 Payment of tax
GENERAL RULE: Time return is filed
EXCEPTION: Due to undue hardship, CIR may extend
time for payment:
Judicial settlement – not to exceed 5
years
Extra-judicial settlement – not to exceed 2
years.
He may also require a bond not exceeding
twice the amount of the tax.
RESTRICTION: No extension shall be allowed when taxes
are assessed for reason of:
Negligence
Intentional disregard of rules and
regulations
Fraud
 Distribution of estate

• Upon payment of tax, the estate tax clearance

shall be issued to the administrator by the CIR
or RDO having jurisdiction over the estate. The
clearance shall serve as authority to distribute
the inheritance to any heir or beneficiary.
• In case of installment payments, the clearance
shall be released only with respect to the
property the tax has been paid.
-End-