Estate and Donor Tax Regulations under RA 7499

Legal basis and regulatory linkage

The regulations are promulgated pursuant to Section 245 in relation to Section 4(h) of the National Internal Revenue Code (NIRC), as amended.
The regulations implement the provisions of Republic Act No. 7499, which restructured estate and donor’s taxes by amending the NIRC, including Sections 77, 79(a), 83(b), Chapter I, and 92(a) and (b), Chapter II, Title III of the NIRC.
The regulations use the rules in the NIRC for estate and donor’s taxes, and apply Family Code property relations rules for certain marriages.

Policy and governing law by timing

Estate taxation is governed by the statute in force at the time of death of the decedent.
Estate tax accrues as of the date of death, and the right of the State to tax vests instantly upon death.
Donor’s tax applies only to a completed gift; the donor’s tax is governed by the law in force at the time the donation is perfected/completed.
Republic Act No. 7499 took effect on July 28, 1992, after fifteen (15) days from its publication in the Official Gazette on July 13, 1992.

Coverage: who pays, what property, which marital rules

The regulations govern taxation of:
- The transmission of the decedent’s estate; and
- Donations made by persons, whether natural or juridical, who are citizens or aliens, residents or non-residents.
For property relations between husband and wife whose marriage was celebrated on or after August 3, 1988, the Family Code (E.O. No. 209) governs.
Estate tax applies to the transfer of the net estate of every decedent, whether resident or non-resident, as determined under the NIRC using Sections 78 and 79.
Donor’s tax applies to the transfer of the total net gifts made during the calendar year.

Estate tax rates and bracket computation

The transfer of the net estate is subject to estate tax using the amended bracket schedule under Section 77 of the NIRC, imposed on the corresponding bracket, with a cumulative total per net estate.
The rate schedule is:
- Over P200,000 but not over P500,000: 5% (plus P0 excess computations).
- Over P500,000 but not over P2,000,000: 8% with P15,000 plus P5,000,000 bracket details as set by the cumulative table.
- Over P2,000,000 but not over P5,000,000: 12% with P135,000.
- Over P5,000,000 but not over P10,000,000: 21% with P495,000.
- Over P10,000,000: 35% with P1,545,000.
The entire value of the net estate is divided into brackets, and each rate applies to its corresponding bracket with a cumulative tax total as shown.

Estate tax: net estate deductions and rules

The value of the net estate of a citizen or resident is determined by deducting from the gross estate amounts listed under Section 79(a), as amended.
Deductions from gross estate include the following:

Allowable deductions: expenses, claims, mortgages, casualty losses

Actual funeral expenses or an amount equal to 5% of the gross estate, whichever is lower, but not to exceed P100,000.
Judicial expenses of testamentary or intestate proceedings.
Claims against the estate, with conditions:
- At the time the indebtedness was incurred, the debt instrument was duly notarized; and
- If the loan was contracted within three years before the death of the decedent, the administrator or executor must submit a statement showing the disposition of the proceeds of the loan.
Claims of the deceased against insolvent persons where the value of the decedent’s interest is included in the gross estate.
Unpaid mortgages upon, or indebtedness with respect to property, where decedent’s interest included in the gross estate is undiminished by such mortgage or indebtedness, excluding:
- Income taxes upon income received after death,
- Property taxes not accrued before death, and
- Any estate tax.
When founded upon a promise or agreement, claims for unpaid mortgages or indebtedness are deductible only to the extent the obligations were contracted bona fide and for adequate and full consideration in money or money’s worth.
Losses incurred during settlement of the estate due to fires, storms, shipwreck, other casualties, or robbery, theft, or embezzlement, are deductible only if:
- Losses are not compensated for by insurance or otherwise; and
- At the time of filing the return, the losses have not been claimed as deductions for income tax purposes; and
- Losses were incurred not later than the last day for payment of the estate tax prescribed under Section 84(a) of the NIRC.
Funeral and burial expenses are defined to include medical expenses during the last illness; mourning apparel of the surviving spouse and unmarried minor children; expenses of the wake preceding the burial including food and drinks; publication charges for death notices; telecommunication expenses in informing relatives; cost of burial plot, tombstones, monument, or mausoleum (but not their upkeep); interment fees and charges; and all other expenses incident to interment rites.
Funeral and burial expenses exclude expenses incurred after interment such as for prayers, masses, entertainment, or the like, and exclude portions borne or defrayed by relatives and friends through contributions or mutual assistance.
Actual funeral expenses must be supported by receipts/invoices or other evidence showing they were actually incurred.

Prior-taxed property credit (anti-double taxation)

An amount equal to a percentage of the value of identified property in the gross estate is deductible if the property formed part of the gross estate and the decedent died within five years prior to the death of a prior decedent, or the property was transferred by gift within five years prior to death, with identification rules based on receipt by gift, bequest, devise, inheritance, or exchange for such property.
The deduction percentages depend on timing:
- 100% if the prior decedent died within one year prior, or the property was transferred by gift within the same period.
- 80% if the prior decedent died more than one year but not more than two years prior, or gift within the same period.
- 60% if prior death was more than two years but not more than three years prior, or gift within the same period.
- 40% if prior death was more than three years but not more than four years prior, or gift within the same period.
- 20% if prior death was more than four years but not more than five years prior, or gift within the same period.
The deduction is allowed only when a gift tax or the estate tax under Title III was finally determined and paid for the donor/prior decedent’s estate, and only to the extent the value is included in the decedent’s gross estate and only if no deduction was allowable under paragraph (2), subsection (a) of Section 79, NIRC for the property given in exchange.
If a deduction was allowed of mortgage or other lien paid wholly or partly before the decedent’s death in determining gift tax or the prior decedent’s estate tax, the deduction allowable under this rule is reduced by the amount so paid.
Where multiple items are involved, the aggregate value is used for computing the deduction.

Transfers for public use and government

Deductions include bequests, legacies, devises, or transfers to or for the use of the Government of the Republic of the Philippines or a political subdivision for exclusively public purposes.
The deductible amount equals the amount of all such transfers.

Family home allowance

Deductions include the family home as an amount equivalent to the current or fair market value or zonal value, whichever is higher.
If the family home’s value exceeds P1,000,000, the excess is subject to estate tax.
As a sine qua non condition for exemption/deduction, the family home must have been the decedent’s family home as certified by the Barangay Captain of the locality.
The family home deduction applies as long as the house or house and lot qualifies under the certification and occupancy rules.

Net share of surviving spouse

Deductions include the net share of the surviving spouse in the conjugal partnership or community property.

Definitions: family home and property regimes

Family home means the dwelling house, including the land, where the husband and wife, or an unmarried person who is the head of a family and members of their family reside, certified by the Barangay Captain.
The family home is deemed constituted on the house and lot from the time it is actually occupied as a family residence and remains such as long as any beneficiary actually resides therein.
Temporary absence from the constituted family home due to travel or studies or work abroad does not interrupt or abandon the family home.
The family home is characterized by permanency: the place to which one intends to return when absent for business or pleasure.
The family home must be part of absolute community/conjugal partnership, or exclusive properties of either spouse with the latter’s consent, and may be constituted by an unmarried head of a family on that person’s own property.
For purposes of availing of the family home deduction to the extent provided in Republic Act No. 7499, a person may constitute only one family home.
Husband and wife means legally married man and woman.
Unmarried Head of a Family means an unmarried man or woman with beneficiaries living in the family home and dependent for legal support, with beneficiaries consisting of the husband and wife or unmarried head of family, and their parents/ascendants/descendants/brothers/sisters whether legitimate or illegitimate who live in the family home and depend for legal support.
Absolute community of property is a property regime where properties owned by the spouses at marriage and those acquired thereafter (unless excepted) are merged; it applies if stipulated in the marriage settlement, if married without a marriage settlement, or if the marriage settlement is void.
Conjugal partnership of gains is a property regime agreed upon in a marriage settlement where spouses keep ownership of property each brought to marriage and those acquired during marriage by gratuitous title, right of redemption, barter or exchange with separate property, and those purchased with exclusive money; upon dissolution, net gains or benefits are divided equally unless otherwise agreed.
Exclusive property of each spouse includes properties brought to marriage as owned by that spouse, acquired during marriage by gratuitous title, acquired by right of redemption, barter or exchange with property belonging to only one spouse, and purchased with exclusive money.
Marriage settlement means the contract entered into by man and woman about to be married fixing property relations terms for present and future property (also called ante-nuptial agreement or matrimonial contract).

Family home deduction computation rules

The family home is appraised as of the time of death at current or fair market value or zonal value, whichever is higher.
The family home must be the actual residential home of the decedent and family at death, certified by the Barangay Captain where the family home is situated.
The family home must be included in the gross estate of a person who died on or after July 28, 1992.
The allowable deduction equals the fair market value or zonal value declared/included in the gross estate but does not exceed P1,00,000.
The family home deduction is limited to P1,000,000 and operates after computing and deducting the net share of the surviving spouse in the conjugal property, where applicable, consistent with the regulatory computation illustrations.

Estate and donor tax filing, payment, and timelines

The estate tax return must be filed within six (6) months from the decedent’s death.
If a court approves a project of partition, the court must furnish the Commissioner with a certified copy and its order within thirty (30) days after promulgation.
The estate tax return is filed with the Revenue District Officer, Collection Agent, or duly authorized treasurer of the city or municipality where the decedent was domiciled at death, unless the Commissioner of Internal Revenue permits otherwise.
If there is no legal residence in the Philippines, the estate tax return is filed with the Office of the Commissioner of Internal Revenue.
Estate tax is paid at the time the return is filed by the executor, administrator, or heirs.
The donor’s tax on total net gifts made during the calendar year is computed using the amended bracket schedule under Section 92 of the NIRC.

Donor’s tax rates (calendar year)

For net gifts:
- Over P50,000 but not over P100,000: 1.5%.
- Over P100,000 but not over P200,000: 3% with P750 as shown in the cumulative schedule.
- Over P200,000 but not over P500,000: 5% with P3,750.
- Over P500,000 but not over P1,000,000: 8% with P18,750.
- Over P1,000,000 but not over P3,000,000: 10% with P58,750.
- Over P3,000,000 but not over P5,000,000: 15% with P285,750.
- Over P5,000,000: 20% with P558,750.
When the donee is a stranger, the donor’s tax payable is ten percent (10%) of the net gifts.
A stranger is a person who is not:
- A brother, sister (whether whole or half blood), spouse, ancestor, or lineal descendant; or
- A relative by consanguinity in the collateral line within the fourth degree of relationship.
Cash or in-kind contributions to any candidate, political party, or coalition of parties for campaign purposes are governed by the Election Code, as amended.
The donor’s tax return must be filed within thirty (30) days from the date the gift is made.
The donor’s tax return is filed with the Revenue District Officer, Collection Agent, or duly authorized treasurer of the city or municipality where the donor was domiciled at the time of transfer, unless the Commissioner permits otherwise; if there is no legal residence in the Philippines, it is filed with the Office of the Commissioner of Internal Revenue.
The donor’s tax is paid at the time the donor’s tax return is filed.

Transitional computation for 1992 donations

Donations made on or before July 28, 1992 are subject to donor’s tax computed using the old rates under Section 92 of the NIRC (before amendment by Republic Act No. 7499).
Donations made on or after July 28, 1992 are subject to donor’s tax computed using the new/amended rates under Section 92 of the NIRC.
The regulations provide computation illustrations for donations made on January 30, 1992, March 30, 1992, August 15, 1992, and September 15, 1992, applying the old rates for donations on or before July 28, 1992 and the amended schedule for donations after July 28, 1992.

Penalties, revocation, and effect on prior rules

Civil penalties and interest prescribed under Sections 248 and 249 of the Tax Code apply in addition to the tax and are collected at the same time, in the same manner, and as part of the tax for the cases enumerated in those Tax Code provisions.
Fine or imprisonment, or both under Sections 253 and 254 of the Tax Code apply upon conviction for violation of any provision of the regulations and related law rules on estate and donor’s taxes.
All regulations, rulings, orders, or portions inconsistent with these regulations are revoked and/or amended.
The regulations apply to transfers of property by death or donation made on or after July 28, 1992.