Published March 5, 2019
Edit: July 9, 2019
In a move to alleviate the Bureau of Internal Revenue’s backlog of tax cases, increase revenue collection, and free up idle properties, the government finally approved the long-awaited Tax Amnesty Act (TAA). This is great news because it gives all taxpayers the once-in-a-lifetime chance to settle unpaid taxes and have a clean record. In this article, I’ll tackle one of three items covered by the TAA: the Estate Tax Amnesty (ETA).
Before the TAA was executed, the estate tax ranged from 0% to 20% of the net estate of the decedent (the person who passes away). Assuming heirs weren’t able to settle the estate taxes to transfer the inherited properties to their name, the BIR automatically slaps a 25% surcharge penalty of the tax payable. Moreover, each year of non-payment subjects the tax payable with a deficiency penalty of 20% annual interest. In short, the tax payable grows exponentially to exorbitant levels, which sometimes are even more than what the property is worth.
Let’s take a hypothetical case as example. In 2001, Jose Reyes (90 years old and widowed) passed away, leaving a 2,000 square meter lot in Forbes Park to his only son Joe. At the time of death, the zonal value of the lot was Php70 Mn. The estate tax payable at the time of death was Php12.7 Mn (after reducing the estate by some allowable deductions), which Joe didn’t have the cash to pay for. Years pass and by December 31, 2016, the tax payable had grown to Php82.5 Mn.
Sadly, Joe passed away on December 31, 2016, leaving behind his wife Josefina as the only heir.
On December 31, 2017, Josefina has to pay estate taxes of Php99 Mn to transfer the title from Jose’s name to Joe’s, and an additional Php88.4 Mn to transfer the title from Joe’s name to hers.
With this kind of tax burden, real properties often become idle. Sellers believe that buyers are willing to settle the estate tax payable as part of the acquisition price. More often than not, buyers shy away from these properties for the fear that undisclosed heirs may suddenly appear or for the possibility that sellers may disappear the moment they settle the tax burden.
This all changes with the TAA. The new law states that Josefina only has to pay Php4.1 Mn (Php67.3 Mn net estate as of Dec. 31, 2001 * 6% ETA rate) to transfer the title from Jose’s name to Joe’s and Php21.5 Mn (Php357.3 Mn Zonal Value as of Dec. 31, 2016 * 6% ETA rate) to transfer from Joe’s to her name.
What if Josefina doesn’t have the Php25.5 Mn needed to settle the estate? She could proceed with an “Extra Judicial Settlement of the Estate WITH ABSOLUTE SALE. This means that Josefina, the heir, will settle the estate as with the proceeds from the consequent sale of the property. This procedure transfers the title of the property straight from Jose’s name to the buyer’s name. Furthermore, the Buyer can acquire an “heir’s bond” from a reputable insurance company, to protect himself from unexpected claims of undeclared heirs.
If you would like to avail of the ETA with the goal of selling the property, you have to move quickly since the amnesty is only offered for a period of 2 years , or until June 14, 2021. If you miss this chance, the taxes to paid reverts back to the National Internal Revenue Code of 1997, which means the penalties revert back to what they were and the penalties will continue to continue grow at the old rate per year.
Send me an email; we can help provide a concrete plan and solution. It would be best if you’re first in line, especially with the sheer number of people who we believe will be claiming advantage of this development (as well as the General Tax Amnesty and Amnesty on Delinquencies).
Juan Alfredo S. Patag, REB
REB Lic.# 0023114; ID# 18-1612675 until 10/20/2022; PTR#7335646 until 12/31/2019
DISCLAIMER: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or of any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.