Among the taxes in the Philippines, estate tax is probably the most ignored. Not by choice, but usually because many do not know what estate tax is, what it means and how it can be settled. Here in the Philippines, it is a common occurrence that whenever a family member passes away, the heirs just go on living in their property not knowing that there is a tax they have to settle.

Now, what is estate tax in the Philippines?

Estate Tax is a tax levied on the net value of the estate of a deceased person before distribution to the heirs.

So what comprises a persons estate? It is basically a sum of all the assets that a person owns – cash in bank, vehicles, real property and stock investments.

Now, who is responsible for processing and paying for the estate tax of the deceased person? It is the heirs. Whoever will be inheriting that persons estate should be responsible for settling the estate. The Estate tax should be filed within 6 months after the death. The late payment of estate tax will lead to the imposition of 25% to 50% surcharge, 20% interest per year, and a compromise penalty. So that’s already 3 penalties you will have to pay on top of the estate tax.

Why do you need to settle the estate tax? Upon a persons death, his assets will be freezed by the government. This means that you wont be able to make a withdrawal or deposit to his bank accounts or stock investment nor be able to sell any of his vehicles or real property, until the estate tax is settled.

What is the process of settling estate tax?

First, the heirs must give a written Notice of Death to the Bureau of Internal Revenue (BIR) within two months after the death. The Notice of Death shall be filed with the BIR’s local office (Revenue District Office or RDO) that has jurisdiction over the place of decedent’s residence at the time of death. This means it has to be filed at the city where the person passed away. So if he passed away in Cagayan de Oro, then the notice of death must be filed here. Like the Notice of Death, the estate tax return shall be filed with the RDO (or other offices authorized by the BIR) in the city or municipality where the decedent was a resident at the time of death. The Estate tax return must be filed within 6 months.

Once filed, BIR will then compute the net value of the estate. Their computation for this is:

Gross value of the estate – less itemized deductions = net value

The net value is then multiplied with the current estate tax rate. Before it used 20%. Now,with the train law, it has been reduced to 6% of the estates net value.

The common deductions/expenses that may be availed of by the heirs are:

• Funeral expenses (maximum of P200,000)
• Fees of the accountant and/or lawyers who assisted the heirs
• Unpaid debts of the decedent
• Standard deduction of P1,000,000 (no substantiation required)
• Medical expenses within one year before death (maximum of P500,000)
• Family home (maximum of P1,000,000)

Net taxable estate

This is the remaining amount after deducting the applicable deductions/expenses from the gross estate.

So after BIR has made the computation, the heirs must then deposit the payment for the estate tax at any BIR accredited bank and then submit the deposit slip along with the rest of the requirements back to BIR. After a month, BIR will release a Certificate Authorizing Registration or CAR. You’ll then submit this to City Hall and the ROD so the title of all real property can be transferred to the heirs. And that’s it. Your estate tax has now been settled.

Connect with me online:

FB: https://www.facebook.com/PropertyPortalbyAlexZeta/

Website:https://www.trulywealthyrealty.com/