Estate Tax Amnesty

The Philippine Congress has passed the bill to extend the estate tax amnesty from June 14, 2023, to June 14, 2025.

Why is this important?

Many properties are still named after patriarchs of families who passed away long ago. Typically, the heirs do not have the money to settle the estate tax and effectively transfer the title to their names. This is a familiar story. The surviving heirs try and forget the need to transfer the title to their names since they possess the property anyway.

The estate tax before 2018 (when TRAIN Law was passed) can be as much as 20%. This is computed based on the zonal value as of the time of the decedent's passing.

For example, if the zonal value of a property was Php30 Mn and the owner (a spouse) passed away in 2010, the heirs would have been required to pay roughly Php3 Mn (1/2 share of the decedent * 20%) to transfer the title to the surviving spouse and their kids.

Since the BIR's interest rate for non-payment is 20% annually, by 2023, the estate tax and interest charges will have ballooned to Php32 Mn.

Let's say in 2023; they wanted to sell the property, which was now worth Php50 Mn. Of this amount, they would only net Php15 Mn after deducting the Php32 Mn estate tax payable and Php3 Mn capital gains tax.

With the amnesty, the government will:

1) Use an estate tax of 6% applied to the zonal value of the property in 2010; the time of passing (no longer 20%); and

2) Forget about any interest charges for non-payment.

So instead of netting Php15 Mn, the heirs would get Php46.1 Mn (Php50 Mn - estate tax of Php900K - CGT of Php3 Mn).

Suppose the surviving heirs still don't have the money to claim the amnesty. If that's the case, they can sell the property and have the buyer shoulder the 6% estate tax via a document called "Extra Judicial Settlement with Absolute Sale." Buyers would be more open to shouldering Php900K estate tax than Php32 Mn.

If the surviving heirs miss the June 14, 2025 deadline, the estate taxes revert to Php32 Mn and continue to grow 20% annually.

Mind you; the government MAY choose to auction off the property for non-payment of taxes.

Disclaimer: The computations presented are rough estimates depicting this once-in-a-lifetime grant's importance.