Law Summary
Estate Tax Rates
- Estate tax applies to the net estate of every decedent, resident or non-resident:
- Net estate up to P200,000: Exempt
- P200,000 to P500,000: 5%
- P500,000 to P2,000,000: 8% plus P15,000
- P2,000,000 to P5,000,000: 12% plus P135,000
- P5,000,000 to P10,000,000: 21% plus P495,000
- Over P10,000,000: 35% plus P1,545,000
Governing Law for Estate Tax
- Estate tax governed by the law in effect at decedent's death.
- Succession and right to tax arise at death.
- RA 7499 effective July 28, 1992, applies to deaths thereafter.
Computation of Net Estate and Deductions
- Net estate calculated by deducting from gross estate:
- Expenses, losses, indebtedness, and taxes:
- Funeral expenses (actual or 5% of gross estate, max P100,000), including medical expenses, mourning apparel, wake expenses, death notices, burial plot cost (only for plot where buried), and other interment rites.
- Judicial expenses for estate proceedings.
- Claims against the estate with requirements for notarization and statements for loans within three years.
- Claims of deceased against insolvent persons included in gross estate.
- Unpaid mortgages or indebtedness on included property.
- Losses from casualty or theft not compensated and not previously claimed for income tax.
- Property previously taxed in prior estates or gifts within five years, with declining deduction rates over the years.
- Transfers for public use to government entities.
- The Family Home:
- Deductible up to P1,000,000 at the higher of fair market or zonal value.
- Must be certified by Barangay Captain.
- Net share of surviving spouse in conjugal partnership or community property.
Definitions
- Family Home: Dwelling and land where family resides, must be certified by Barangay Captain.
- Husband and Wife: Legally married man and woman.
- Unmarried Head of Family: Unmarried person supporting dependents residing in family home.
- Absolute Community of Property: Full merger of spouses' properties unless excepted.
- Conjugal Partnership of Gains: Property regime agreed upon in marriage settlements involving separate and common property management.
- Exclusive Property: Property owned by one spouse prior to marriage or acquired during marriage by certain titles.
- Marriage Settlement: Contract fixing property relations before marriage.
Family Home Deduction Computation
- Family home appraised at date of death at higher of current/fair market value or zonal value.
- Deduction capped at P1,000,000.
- Must be actual family residence at death, certified.
- Different scenarios for unmarried heads, married with surviving spouse, conjugal or exclusive property, and situations with simultaneous spousal deaths.
Filing and Payment of Estate Tax
- Estate tax return filed within six months of death.
- Filed with Revenue District Officer or authorized official where decedent was domiciled.
- Payment due upon filing of return.
Donor's Tax Rates
- Annual total net gifts taxed progressively:
- Up to P50,000: Exempt
- P50,000 to P100,000: 1.5%
- P100,000 to P200,000: 3%
- P200,000 to P500,000: 5%
- P500,000 to P1,000,000: 8%
- P1,000,000 to P3,000,000: 10%
- P3,000,000 to P5,000,000: 15%
- Over P5,000,000: 20%
- If donee is a stranger, a flat 10% rate applies.
- Contributions to candidates and political parties governed by the Election Code.
Governing Law for Donor's Tax
- Donor's tax applies on completed gifts (accepted and delivered).
- Law in effect at completion governs taxation.
- RA 7499 effective July 28, 1992 sets current rates.
Computation for Donor's Tax on 1992 Donations
- Donations before July 28, 1992 taxed at old rates.
- Donations on or after July 28, 1992 taxed at new rates.
- Aggregation of donations within calendar year for tax computation.
Filing and Payment of Donor's Tax
- Return filed within 30 days from gift date.
- Filed at donor's domicile revenue office.
- Payment due upon filing return.
Penalties for Non-compliance
- Civil penalties and interest as per Sections 248 and 249 of the Tax Code.
- Possible fines or imprisonment upon conviction according to Sections 253 and 254.
Repealing Clause
- Previous inconsistent rules or orders are repealed or amended.
Effectivity
- Regulations effective 15 days after publication.
- Apply to property transfers by death or donation on or after July 28, 1992.