Estate tax rate changes
- Section 1 amends Section 85 (Rates of estate tax) of Commonwealth Act No. 466 by imposing an estate tax on the transfer of the net estate of every decedent, whether a resident or nonresident of the Philippines.
- The estate tax equals the sum of percentages applied to the value of the net estate determined under Sections 88 and 89.
- Section 85 imposes the following progressive rates (each rate applies to the excess amount in the stated bracket):
- One per centum of the amount by which the net estate exceeds five thousand pesos and does not exceed twelve thousand pesos.
- Two per centum of the amount by which the net estate exceeds twelve thousand pesos and does not exceed thirty thousand pesos.
- Two and one half per centum of the amount by which the net estate exceeds thirty thousand pesos and does not exceed fifty thousand pesos.
- Three per centum of the amount by which the net estate exceeds fifty thousand pesos and does not exceed seventy thousand pesos.
- Five per centum of the amount by which the net estate exceeds seventy thousand pesos and does not exceed one hundred thousand pesos.
- Seven per centum of the amount by which the net estate exceeds one hundred thousand pesos and does not exceed one hundred and fifty thousand pesos.
- Nine per centum of the amount by which the net estate exceeds one hundred and fifty thousand pesos and does not exceed two hundred and fifty thousand pesos.
- Eleven per centum of the amount by which the net estate exceeds two hundred and fifty thousand pesos and does not exceed five hundred thousand pesos.
- Thirteen per centum of the amount by which the net estate exceeds five hundred thousand pesos and does not exceed one million pesos.
- Fifteen per centum of the amount by which the net estate exceeds one million pesos.
- The operative base for the estate tax remains the net estate as determined under Sections 88 and 89.
Inheritance tax rate framework
- Section 2 amends Section 86 (Rates of inheritance tax) and provides that, in addition to the estate tax in Section 85, an inheritance tax is imposed.
- The inheritance tax equals the sum of percentages applied to the value of the individual share of each heir or beneficiary in the net estate, after deducting the amount of the estate tax, for every decedent, whether resident or nonresident of the Philippines.
- Section 86 sets a special educational/charitable rule: if the beneficiary receives the property exclusively for educational or charitable purposes, the tax is computed under a schedule using the share in the inventoried property, subject to exemptions and reporting duties.
- Educational/charitable beneficiaries (Section 86, subsection (a)):
- The share component for a surviving spouse or a legitimate, recognized natural, illegitimate, or adopted child is exempt when it does not exceed five thousand pesos (for the cases described in the proviso).
- The schedule applies as follows to the share component (for each beneficiary in the inventoried property):
- Two per centum where the share does not exceed twelve thousand pesos.
- Four per centum where the share exceeds twelve thousand pesos and does not exceed thirty thousand pesos.
- Six per centum where the share exceeds thirty thousand pesos and does not exceed fifty thousand pesos.
- Eight per centum where the share exceeds fifty thousand pesos and does not exceed seventy thousand pesos.
- Twelve per centum where the share exceeds seventy thousand pesos and does not exceed one hundred thousand pesos.
- Fourteen per centum where the share exceeds one hundred thousand pesos and does not exceed one hundred and fifty thousand pesos.
- Sixteen per centum where the share exceeds one hundred and fifty thousand pesos and does not exceed two hundred and fifty thousand pesos.
- Eighteen per centum where the share exceeds two hundred and fifty thousand pesos and does not exceed five hundred thousand pesos.
- Twenty per centum where the share exceeds five hundred thousand pesos and does not exceed one million pesos.
- Twenty-two per centum where the share exceeds one million pesos.
- Reporting duty for educational/charitable property (Section 86, subsection (a)):
- The person or persons in charge must submit reports of the administration and use of the property to the Collector of Internal Revenue from time to time and within twenty days after demand by the Collector.
- Relative-based multipliers (Section 86):
- Subsection (b): If the beneficiary is a brother or sister (legitimate or acknowledged natural) of a common father or mother, or their children, or descendant mentioned in the will and not included in subsection (a), the tax in subsection (a) is applied with an increase of seventy-five per centum.
- Subsection (c): If the beneficiary is other relatives within the degree of relationship recognized by law in intestate succession not covered in subsections (a) and (b), the tax in subsection (a) is applied with an increase of one hundred and fifty per centum.
- Subsection (d): If the beneficiary is a relative by affinity within the same degree as in subsections (a) and (b) except the surviving spouse, the tax in subsection (a) is applied with an increase of two hundred and twenty-five per centum.
- Subsection (e): If the beneficiary is a stranger, the tax in subsection (a) is applied with an increase of four hundred per centum, and when the share exceeds five hundred thousand pesos, the excess is subject to tax at ninety-five per centum.
- Strangers definition (Section 86):
- Strangers are deemed relatives by consanguinity in the collateral line not within the degree recognized by law in intestate succession, and all relatives by affinity except the spouse and those mentioned in subsection (d).
- Domestic servant and trusted employee rule (Section 86):
- If the beneficiary is a domestic servant, the tax is that fixed in subsection (a) on the first two thousand pesos.
- If the beneficiary is a trusted employee, the tax is that fixed in subsection (a) on the first five thousand pesos.
- The tax on the excess follows the tax prescribed in this subsection.
- Gifts divided among the poor / masses or pious works (Section 86):
- Where property is divided among the poor without designation of particular persons, or disposed of for masses or other pious works, the tax at the rate in this subsection is collected on the total amount of such property.
- Usufructuary interest / use or habitation / annuity basis (Section 86):
- If the property is transmitted subject to the usufructuary interest, use or habitation, or annuity of a third person, the inheritance tax is based on the value of the inventoried property less that of the usufruct, use or habitation, or annuity determined as provided hereinafter.
Net estate computation amendment
- Section 3 amends Section 89 (Net estate) of Commonwealth Act No. 466.
- For determining the net estate, the value is determined for the purpose of estate and inheritance taxes by deducting from the value of the gross estate in the case of a citizen or resident of the Philippines.
- Section 89 includes deductible items listed under deductions such as expenses, losses, indebtedness, and taxes.
- Section 3 amends Section 89(a)(1)(E) by defining a deduction for:
- unpaid mortgages upon, or indebtedness in respect of, property where the value of decedent’s interest therein, undiminished by such mortgage or indebtedness, is included in the gross estate.
- The deduction under Section 89(a)(1)(E) excludes:
- income taxes upon income received after the death of the decedent,
- property taxes not accrued before his death, and
- estate or inheritance taxes.
- Limitation for deductions founded on promises or agreements:
- If the claims against the estate, unpaid mortgages, or indebtedness are founded upon a promise or agreement, the deduction is limited to the extent the obligations were contracted bona fide and for an adequate and full consideration in money or money’s worth.
- Additional casualty loss deductions (Section 89(a)(1)(E)):
- Losses incurred during settlement due to fires, storms, shipwreck, or other casualties, or from robbery, theft, or em-bezzelment, are deductible when not compensated by insurance or otherwise.
- These losses must be not claimed as an income tax deduction in an income tax return at the time of filing.
- Timing condition for casualty losses (Section 89(a)(1)(E)):
- The losses must have been incurred not later than the last day for the payment of the estate tax as prescribed in Section 95(a).
Donor gift tax rates
- Section 4 amends Section 109 (Rates of tax payable by donor) of Commonwealth Act No. 466.
- The donor’s tax for each calendar year equals the excess of:
- a tax computed on the aggregate sum of net gifts for that calendar year and preceding calendar years,
- over a tax computed on the aggregate sum of net gifts for the preceding calendar years.
- Section 109 establishes a rate schedule for the donor tax using the following brackets (progressive):
- One per centum of the amount by which the net gifts exceed five thousand pesos and do not exceed twelve thousand pesos.
- Two per centum of the amount by which the net gifts exceed twelve thousand pesos and do not exceed thirty thousand pesos.
- Three per centum of the amount by which the net gifts exceed thirty thousand pesos and do not exceed fifty thousand pesos.
- Four per centum of the amount by which the net gifts exceed fifty thousand pesos and do not exceed seventy thousand pesos.
- Five per centum of the amount by which the net gifts exceed seventy thousand pesos and do not exceed one hundred thousand pesos.
- Seven per centum of the amount by which the net gifts exceed one hundred thousand pesos and do not exceed one hundred and fifty thousand pesos.
- Nine per centum of the amount by which the net gifts exceed one hundred and fifty thousand pesos and do not exceed two hundred and fifty thousand pesos.
- Eleven per centum of the amount by which the net gifts exceed two hundred and fifty thousand pesos and do not exceed five hundred thousand pesos.
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