In the Philippines, if you inherit real estate properties from your parents or other relatives the transfer of titles of ownership under your name does not happen automatically. The heirs to the property are required to pay the inheritance tax before they can do so. In practice however, since unlike with income tax, VAT and other business taxes, the BIR does not actually pursue the collection of estate taxes, the decedent’s heirs take over the administration of the property and receive the income generated therefrom even without settling the estate tax.
What is the estate tax? And what are the important things we should learn about it?
1. It is a tax on the right to transmit property and not a tax on the property itself
Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death. It is not a tax on property rather a tax imposed on the privilege of transmitting property upon the death of the owner. It is based on the laws at the time of death regardless of the actual possession or enjoyment of the estate by the beneficiary.
2. Properties shall be based on the fair market value at the time of death.
The properties subject to Estate Tax shall be appraised based on its fair market value at the time of the decedent’s death.
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3. Taxable amount is arrived after deducting all expenses, losses, debts and taxes related to the property.
Other allowed deductions among others are the following:
- Transfers for public use
- The family home at fair market value but not to exceed P1,000,000.00
- Standard deduction in the amount of One Million Pesos (P1,000,000.00) shall be allowed as an additional deduction without need of substantiation.
- Net share of the surviving spouse in the conjugal partnership or community property