What You Need to Know About Estate Tax Amnesty for Inherited Properties

Under Philippine laws, properties under the name of recently deceased citizens who left no will are automatically inherited by compulsory heirs such as their spouse and children. Such properties include both real estate and personal properties owned by the decedent, or the person who recently died.

However, heirs cannot sell or further develop the property until title are transferred under their names.

How to transfer title of inherited properties without prior will

In case no will has been passed on from a deceased owner of a property in the Philippines, here are the steps heirs must follow:

Execute Extra-Judicial Settlement (EJS) of estate, a document describing the ownership of the decedent and the agreed manner the property shall be distributed and signed by all the heirs as defined by law.

Heirs shall file an Estate Tax Return (ETR) and settle the outstanding estate tax with the Bureau of Internal Revenue. Estate tax is imposed on the transfer of estate from a deceased person to his/her legal heirs.

After the settlement of outstanding ETR by the BIR, it will issue a Tax Clearance to authorize the Registry of Deeds to transfer the title of the properties to the heirs.

Significance of estate tax

Settlement of estate tax is important because failure to do so means the right to sell the property to a willing buyer cannot proceed if the title of the property does not bear name of the seller (heir). Estate tax rates are sometimes taken for granted until the property attracts interest from buyers. And by that time, heirs might be shocked to find out that a hefty interest and penalties has been imposed for unpaid taxes.

As a result, heirs are burdened with high outstanding taxes and may take out loans to bail out the properties from further tax surcharges.

Proposed estate tax amnesty

The Republic Act (RA) No. 11213 or the Tax Amnesty Act was approved by Philippine President Rodrigo Duterte on 14 February 2019. This amnesty applies to the estate of decedents who died on or before 31 December 2017, with or without assessments duly issued therefore, whose estates have remained unpaid or have accrued as of 31 December 2017.

The estate tax amnesty rate is 6% based on the decedent’s total net estate — the gross estate less allowable deductions as provided in the Tax Code or any applicable state laws — at the time of death. If an estate tax return was previously filed with the BIR, the estate tax of 6% would be based on the net undeclared estate.

To provide a clearer understanding of the estate tax amnesty and how it can help current legal heirs, here’s an example:

Juan dela Cruz died after a lengthy illness in 2001 and has his wife and two children as legal heirs. Since his death took place before December 31, 2017, his heirs are entitled to apply for estate amnesty tax.

Gross estate:
Personal Property (Home) – P2.5 million
Real Property (Farmland) – P7.5 million
TOTAL: P10 million

Allowed deductions:
Family Home: P1 million
Standard Deduction: P1 million
Medical Expenses: P500,000 (one year before death)
Funeral Expenses: P200,000
TOTAL: P2.7 million

NET ESTATE: P7.3 million
Since the decedent died in 2001, the following estate tax table applies:

Over P5 million but below P10 million:
= P465,000 + 15% of excess of P5 million

Estate Tax Due: P463,000 + P2.3 million * 15% = P808,000
Surcharge: 50% of P808,000 = P404,000
Interest: (20% per annum * P808,000) x 18 years = P2.908 million

Total Estate Tax Due: P4.12 million

If heirs avail the of Estate Tax Amnesty, estate tax should be much smaller and simpler to compute:

NET ESTATE: P7.3 million
Estate Tax Due = 6% of Net Estate = P438,000

This is a win-win situation for both taxpayers/heirs and the government. While it amounts to lower revenue expectations, it’s also realistic that taxpayers are more likely to afford the amnesty rates and pay taxes rather than skip paying the excessive amounts.

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