Those who inherited property from loved ones who died in or before 2017 better avail themselves of the estate tax amnesty while there is still time.
The amnesty period is to end on June 14, unless the government extends the deadline anew.
An estate tax is a levy on the privilege of transmitting property upon the owner’s death. Nonpayment means incurring penalties and surcharges; payment before the deadline is a prudent move, especially for families with modest means, in these times of an unrelenting surge in the cost of almost everything.
Settling the estate tax confers other benefits. The heirs can transfer the title to the property to their name and make use of it in a manner that they see fit. They can sell, subdivide, or, in the case of land, develop it.
Real estate still in the name of the deceased may not attract buyers. If ever a buyer comes along, they may demand a huge discount.
Another benefit of settling the estate tax is enjoying the flat tax rate of 6%, down from up to 20%, based on the value of the net estate of the deceased.
The net estate is the value of the property after deductions, such as the family home and standard deduction as well as medical expenses.
Heirs who settle the estate tax after the amnesty period will have to pay a 25% surcharge on the amount due and 20% interest per year.
The amnesty first lapsed on June 14, 2021, under Republic Act No. 11213, or the Tax Amnesty Act that then President Rodrigo Duterte signed on Feb. 14, 2019.
But the Covid-19 lockdowns and other pandemic restrictions prevented families from paying the tax, prompting the government to extend the deadline for two years.
Another extension sought
Despite the extension, families are still struggling to comply with the documentary requirements and to raise cash for the tax, according to the House of Representatives’ committee on ways and means.
On April 23, the committee approved a bill seeking a second two-year extension of the amnesty to June 14, 2025.
The coauthors of House Bill No. 7409 are Speaker Ferdinand Martin Romualdez, Ilocos Norte Rep. Ferdinand Alexander Marcos, Majority Leader Manuel Jose M. Dalipe of Zamboanga City and Tingog party-list Representatives Yedda Marie Romualdez and Jude Acidre.
Before the Tax Reform for Acceleration and Inclusion (TRAIN) Law took effect in 2018 that set the estate tax rate at 6%, the rates ranged from 5 to 20%. The high tax rates, among other factors, had resulted in many properties across the country with unpaid estate tax.
Unfamiliarity, cultural avoidance
“This tax hurdle, plus unfamiliarity with estate taxes and cultural avoidance to discuss death-related affairs, has led families to delay settling the estate, resulting in huge penalties and surcharges while the use of assets is not maximized,” Sen. Juan Edgardo Angara, author of the TRAIN bill in the Senate, was quoted as saying.
Only seven in every 100 deaths in the Philippines had settled estate taxes before the TRAIN law came into force. The payments accounted for just 1/6 of 1% of the total Bureau of Internal Revenue (BIR) collections.
With the fixed flat rate of 6%, the government expects more families to pay the estate tax and thus increase revenue collection.
For sure, availing oneself of the benefits of settling the estate tax is much better than ignoring the amnesty and not maximizing the use of the property.
There’s no point in paying the estate tax, penalties, surcharges and other attendant costs such as legal fees if the total amount that the heirs must cough up exceeds the value of the property.
The estate tax return must be filed within one year from the owner’s death. The estates of those who died after 2017 are not covered by the tax amnesty but enjoy the flat tax rate of 6%.
Knowing the amnesty deadline is one thing. Navigating the labyrinthine ins and outs of filing the tax is another.
Awareness of the step-by-step process, the cost and the time it would take to complete the task, may inform the heirs’ decision whether to do the filing themselves or to tap others to do it on their behalf.
Here are the steps and the list of mandatory requirements (original copy and two copies of each document) in settling the estate tax of real estate, e.g., lot and/or house, or condo.
1. Taxpayer (heir/s or their representative) submits to BIR’s ONETT (One-Time Transaction) section the following:
- Affidavit of self-adjudication, extrajudicial settlement or court order if the estate was settled judicially
- Death certificate (copy from the Philippine Statistics Office [PSA])
- Birth certificate of each heir (copy from the PSA)
- Certification from the barangay captain for the last residence of the decedent (person no longer living).
- Certified true copy of title to the land from the Register of Deeds (RD)
- Certified true copy of transfer certificate of title, if a condo, from the RD
- Certified true copy of the tax declaration—either for land, improvement (house or any other building), if any, or condo from the Assessor’s Office
- Certified true copy of no improvement from the Assessor’s Office (if land has no structure)
- Taxpayer Identification Number (TIN) of each heir and the deceased. ONETT can verify the TIN electronically. (One original copy for presentation only.)
- Estate TIN. This can be obtained through the BIR’s Client Support System (CSS) by filing Form 1905 (Application for Registration Information Update/Correction/Cancellation) in which the old TIN is being sought to be cancelled due to death. Form 1905 must be submitted to the CSS along with Form 1904 (Application for Registration).
- Form 2118-EA, or Estate Tax Amnesty Return.
- Form 0621-EA (Acceptance Payment Form Estate Tax Amnesty) “For Taxable Year 2017 and Prior Years.” The form, to be filled out in quadruplicate, can be downloaded from the BIR website. Print one copy, fill it out and have it photocopied.
- Special power of attorney (SPA) if the person transacting/processing the transfer is not a party to the transaction and/or sworn statement if one of the heirs is designated as an executor or administrator
- Photocopy of ID of each heir and the attorney-in-fact (one with SPA), or executor/administrator.
2. ONETT officer of the day computes the amount to be paid and writes it on Form 0621-EA if all the documents and forms are in order. For the land or condo, the amount is 6% of the property share of the deceased based on the fair market value as determined by the BIR (basically the zonal value), or the fair market value (FMV) set by the assessor, whichever is higher, upon his/her death less deductibles.
For the house, it is also 6% but based on its FMV at the time of death. (The schedule of market values is set by the local government and is the basis for collecting the real property tax. It is usually below actual market prices, as it is often dated.)
3. Taxpayer submits four copies of Form 0621-EA to a BIR-authorized agent bank, such as Bank of Philippine Islands, Landbank or Philippine National Bank, in the city or town where the decedent had lived and paid the tax.
4. Bank keeps two copies of Form 0621-EA.
5. Taxpayer hands over the other two copies machine-validated by the bank, along with the proof of payment, to the ONETT officer.
6. Taxpayer is issued a claim slip, which indicates the date for getting the CAR (certificate authorizing registration).
7. The BIR Collection Section verifies the payment of the tax.
8. Once it is verified, the Assistant Revenue District Officer (ARDO) or the RDO, according to a threshold, reviews the documents and, if in order, approves the preparation of the eCAR.
9. An encoder will then create and print two copies of the CAR to be signed by the ARDO or RDO (depending on the threshold). In the absence of the ARDO or RDO, the Chief of the Assessment Section can sign the eCAR.
10. After a month or so, at least in the case of Revenue District Office Branch 52 (Parañaque City), two hard copies of CAR (an original and a duplicate copy) will be released to the heir/s, the estate administrator/executor or the attorney in fact upon presentation of the claim slip.
Transfer tax, city treasurer
The duplicate copy of the CAR is for the taxpayer (heir/s). The original copy is to be submitted to the City Treasurer’s Office for the payment of transfer tax (3/4 of 1%, or 0.75% in most cities in Metro Manila).
There is a catch, though. There is no amnesty for delayed payment of the transfer tax. The transfer tax should be paid within 60 days after the owners’ death. After the deadline, the penalties kick in.
In Parañaque City, for instance, heirs must pay a one-time surcharge of 25% of the tax due and a monthly penalty of 2% per month for up to 36 months (2% x 36, or 72% of the total amount of the transfer tax due).
Before the transfer tax can be paid, the heirs must get a tax clearance that the property (land and/or house, or condo) has no real property tax (amilyar in Filipino and amillaramiento in Spanish.) arrears. A clearance in Parañaque costs P200 for land and another P200 for the improvement, P400 for house and lot. In Muntinlupa City, a tax clearance for a condo costs P60.
Other documents that need to be submitted to the City Treasurer’s Office in Parañaque before the amount of transfer tax to be paid is computed are the following (two photocopies each):
- Official receipt of the tax clearance
- Extrajudicial settlement
- Tax declaration
- Real property tax clearance
- Transfer certificate of title
- Valid government-issued ID of the executor or attorney in fact
RD, slew of fees
Once the transfer tax and the clearances are issued, the next stop is the Register of Deeds for the application for a title in the name of the heirs.
The RD requires the following for the deed of extrajudicial settlement (EJS) of estate or affidavit of self-adjudication:
- EJS of state (original copy with BIR stamp)
- Owner’s duplicate certificate of title (original copy)
- Affidavit of publication of the EJS, with attached newspaper clipping (original copy)
- CAR (original copy)
- Transfer tax clearance (original copy)
- Current realty tax clearance (original copy)
- Current tax declaration (original copy)
- Photocopy of ID (attorney in fact or estate executor)
The RD charges a slew of fees consisting of entry, registration, issuance of title and annotation fees, and contribution to a legal research fund.
In addition, there is a separate registration fee for documents, fee for additional page, and IT service fees for registration, annotation and issuance.
Once these fees are paid and a receipt issued, the heir or attorney in fact is given a document called a Transaction Preview Notice. The notice gives the date for claiming the new title (in one month’s time) and offers a preview of the title with the lot’s technical description and area, and the list of new owners.
The notice advises the taxpayer (heir/s or their representative) to review the entries for typo errors so the RD can correct them. The taxpayer is given two days to submit a copy of the notice with their corrections.
A QR code lets the heir/s or their representative to monitor online the status of the preparation of the new title.
Once the title is released, the last stop is the Assessor’s Office for the issuance of a tax declaration—one each for either land, condo or improvement. The tax declaration provides the assessed value of the property on which the annual real property tax is based.
The assessor’s documentary requirements are the following:
- Certified true copy of title
- Photocopy of EJS
- Photocopy of CAR
- Photocopy of transfer tax receipt and transfer tax clearance
- Photocopy of real property tax receipt and tax clearance (full payment of current year)
- Photocopy of SPA/authorization with valid ID
- Photo of property and contact number (for inspection purpose)
- Transfer fee of P200 per TCT, or P400 for house and lot (in Parañaque).
Once the tax declarations are released, the heirs’ long “journey” to becoming owners of the property is complete. They now have the papers to prove it and can do what they want with the property.
Juan V. Sarmiento Jr. ([email protected]) has a diploma in land valuation and management from the University of the Philippines Open University and is a licensed real estate appraiser and broker. —Ed.