Estate Tax in the Philippines (TRAIN Law)

Gerard Carpizo

13 May 202006:25

Summary

TLDRThis tutorial video explores estate taxes in the Philippines, defining the concept and detailing the impact of TRAIN law on tax rates and allowable deductions. It explains that estate tax is levied on the privilege of property transfer upon death, not on the property itself. The video outlines the updated standard deduction, clarifies deductions for resident and non-resident estates, and provides a step-by-step calculation of estate tax using illustrative problems. It concludes with instructions on filing requirements and forms, encouraging viewers to subscribe for more taxation insights.

Takeaways

📚 Estate tax is a tax on the right of a deceased person to transmit their estate to lawful heirs or beneficiaries.
🏛 Succession is the mode of acquisition by which property rights and obligations are transmitted after a person's death.
💼 The estate tax is not a tax on property itself but on the privilege of transmitting property upon the owner's death.
📉 The Tax Reform for Acceleration and Inclusion (TRAIN) law updated estate tax rates and deductions effective January 1, 2018.
🏡 The standard deduction for estate tax purposes has been increased from 1 million to 5 million pesos under TRAIN law.
🌍 For non-resident decedents who were not citizens of the Philippines, only properties situated in the Philippines are included in the taxable estate.
💼 If the gross estate is over five million pesos, a certification from a certified public accountant is required for the estate tax return.
🏠 The family home is considered as an allowable deduction for estate tax purposes.
💡 Actual funeral, medical, and judicial expenses related to testamentary and intestate proceedings are no longer deductible under TRAIN law.
💼 For Philippine resident citizens who died after January 1, 2018, estate tax computation follows the TRAIN law rates and regulations.
📊 The estate tax is computed by multiplying the net estate (after allowable deductions) by the flat rate of six percent.

Q & A

What is the main topic of the tutorial video?
-The main topic of the tutorial video is estate taxes in the Philippines, specifically discussing the definition, updated tax rates, allowable deductions, and an illustrative problem related to estate tax.
What is the difference between succession and estate tax as per the video?
-Succession is the mode of acquisition by which the property rights and obligations of a deceased person are transmitted to another or others, either by will or by operation of law. Estate tax, on the other hand, is a tax on the right of the deceased person to transmit their estate to lawful heirs and beneficiaries at the time of death.
When does the video state that the old tax laws are applicable?
-The old tax laws are applicable if the decedent died prior to January 1, 2018.
What is the general format for computing estate tax as mentioned in the video?
-The general format for computing estate tax is to deduct allowable deductions from the gross estate to arrive at the net estate, and then multiply the net estate by six percent to compute the estate tax due.
What is the updated standard deduction for estate tax purposes after TRAIN law?
-The updated standard deduction for estate tax purposes after TRAIN law has been increased from 1 million to 5 million.
What is the requirement for estate tax returns if the gross estate is more than five million, according to the video?
-If the gross estate is more than five million, the estate tax return shall require a certification from a certified public accountant.
What are the allowable deductions for estate tax purposes that have been updated due to TRAIN law?
-The allowable deductions updated due to TRAIN law include an increased standard deduction, claims against the estate, unpaid mortgages, properties previously taxed, the family home, and amounts received by heirs under Republic Act No. 4917.
What deductions are allowed to non-resident estates for estate tax purposes?
-Deductions allowed to non-resident estates include a standard deduction of 500,000, property previously taxed, transfers for public use, share in the conjugal property, and tax credit for estate taxes paid to a foreign country.
What has changed regarding actual funeral expenses, medical expenses, and judicial expenses under TRAIN law?
-Under TRAIN law, deductions for actual funeral expenses, medical expenses, and judicial expenses in relation to testamentary and intestate proceedings have been repealed.
Can you provide an example of how estate tax is computed based on the video?
-For a Philippine resident citizen who died on January 2018 with a net taxable estate of 10 million, the estate tax due would be computed by multiplying the net estate (10 million) by the estate tax rate of 6%, resulting in an estate tax due of 600,000.
What is the process for filing estate tax and which form should be used according to the video?
-Estate tax should be filed within one year from the death of the decedent, and the BIR Form 1801 should be used for filing.

Outlines

00:00

📚 Introduction to Estate Taxation in the Philippines

This paragraph introduces a tutorial video on estate taxes in the Philippines. The speaker outlines the topics to be covered, including defining estate tax, discussing updates on tax rates post-TRAIN law, listing allowable deductions, and presenting an illustrative problem. The video aims to provide a working knowledge of succession and property relations in the context of estate tax. It clarifies that estate tax is not a tax on property but on the privilege of transmitting property upon the owner's death. The general method of computing estate tax is also briefly explained, which involves deducting allowable deductions from the gross estate and applying a 6% tax rate on the net estate.

05:00

💼 Detailed Calculation of Estate Tax with Illustrative Examples

The second paragraph delves into the specifics of estate tax calculations with examples. It discusses the updated standard deductions due to TRAIN law, the valuation of the gross estate, and the requirement for a CPA certification if the gross estate exceeds five million. The paragraph provides an illustrative problem involving a Philippine resident citizen who died in January 2018, leaving a net taxable estate of 10 million. The estate tax is calculated as 6% of the net estate, resulting in a tax of 600,000. Another example is given for a citizen who died leaving a total gross estate of twenty-two million five hundred thousand, with various properties and life insurance proceeds. Allowable deductions are applied, and the net estate is calculated before applying the 6% tax rate. The paragraph concludes with information on filing the estate tax return and the use of BIR form 1801.

Mindmap

Keywords

💡Estate Tax

Estate tax is a tax imposed on the privilege of transmitting property upon the death of the owner. It is not a tax on the property itself but on the right to pass it on to heirs or beneficiaries. In the video, the speaker discusses how estate tax is calculated in the Philippines, emphasizing that it is based on the gross estate at the time of death, with certain deductions applied.

💡Succession

Succession refers to the mode of acquisition through which property rights and obligations are transmitted to another person or persons upon the death of the original owner, either by will or by operation of law. The video explains that understanding succession is crucial for comprehending estate tax, as it is the legal process that facilitates the transfer of property after death.

💡Gross Estate

The gross estate is the total value of all the property, real or personal, tangible or intangible, that a person owns at the time of their death. In the context of the video, the gross estate is a critical figure because it is the starting point for calculating estate tax, from which allowable deductions are subtracted.

💡Allowable Deductions

Allowable deductions are the expenses or values that can be subtracted from the gross estate to determine the net estate, which is then used to calculate the estate tax. The video provides an updated list of these deductions under the TRAIN law, such as the standard deduction and deductions for the family home.

💡TRAIN Law

The Tax Reform for Acceleration and Inclusion (TRAIN) law is a significant update to the tax laws in the Philippines, which includes changes to estate tax rates and allowable deductions. The video discusses how the TRAIN law has affected the computation of estate tax, including increasing the standard deduction and modifying the deductions for non-resident estates.

💡Non-Resident Deceased

A non-resident deceased refers to a person who, at the time of their death, was not a citizen or resident of the Philippines. The video explains that for non-resident decedents, only the portion of the estate situated in the Philippines is included in the taxable estate for estate tax purposes.

💡Standard Deduction

The standard deduction is a fixed amount that can be deducted from the gross estate when calculating the net estate for estate tax purposes. The video highlights that the TRAIN law has increased the standard deduction from 1 million to 5 million pesos, which directly impacts the amount of estate tax owed.

💡Conjugal Property

Conjugal property refers to property acquired by the spouses during the marriage that is considered common property. In the video, the speaker mentions that the family home, which is often part of the conjugal property, is subject to specific deductions when calculating the estate tax.

💡Tax Credit

A tax credit is an amount that can be used to offset tax liability. In the context of the video, it is mentioned that a tax credit for estate taxes paid to a foreign country is one of the allowable deductions for non-resident estates.

💡Estate Tax Return

An estate tax return is the document filed with the tax authorities to report and calculate the estate tax owed upon the death of an individual. The video specifies that if the gross estate is more than five million pesos, a certification from a certified public accountant is required, and the estate tax return must be filed within one year from the death of the decedent using BIR Form 1801.

Highlights

Introduction to a tutorial video on taxation, specifically estate taxes in the Philippines.

Definition of estate tax and its update post-TRAIN law.

Explanation of succession and its relation to estate tax.

Clarification that estate tax is not a tax on property but on the privilege of transmitting property upon death.

General format for computing estate tax, including deductions and tax rate.

Valuation of the gross estate includes all property at the time of death, with special considerations for non-residents.

Requirement for a certified public accountant's certification if the gross estate exceeds five million.

Updated list of allowable deductions for estate tax purposes post-TRAIN law.

Increase in the standard deduction from 1 million to 5 million due to TRAIN law.

Details on deductions allowed to non-resident estates, including standard deduction and property previously taxed.

Repeal of deductions for actual funeral, medical, and judicial expenses under TRAIN law.

New provision allowing the withdrawal of cash from the decedent's deposits, with a 6% withholding tax.

Illustrative problem calculating estate tax for a Philippine resident citizen with a net taxable estate of 10 million.

Second illustrative problem with a total gross estate of twenty-two million five hundred thousand, including various properties and life insurance proceeds.

Calculation of the net estate after allowable deductions and the subsequent estate tax due.

Information on the filing of estate tax and the use of BIR form 1801 within one year from the decedent's death.

Call to action for viewers to engage with the content and subscribe for more taxation knowledge.