[TOPIC 7] GROSS ESTATE | Valuation of Real Properties, Personal Properties, and Usufructuary Rights

Summary

In this video, the presenter explains the complexities of estate tax and donor tax in the Philippines, focusing on the situs of taxation for both taxes. Key concepts covered include global taxation for resident citizens, non-resident citizens, resident aliens, and non-resident aliens. The presenter also explains how to evaluate gross estate, including real, personal, and intangible properties, and how usufruct rights affect estate valuation. The video offers detailed examples of property evaluations, including the valuation of real estate, vehicles, and bank deposits, as well as how to compute the value of usufruct rights and bare dominion. The video concludes by providing insights into estate tax calculations and planning.

Takeaways

• 😀 The situs of taxation for estate and donor taxes refers to the place where the property or estate is taxable, determining whether it is subject to tax in the Philippines.
• 😀 Resident citizens, non-resident citizens, and resident aliens are taxable globally for both estate and donor taxes, meaning their properties, regardless of location, are considered in the gross estate or gift.
• 😀 Non-resident aliens are only taxed on properties located in the Philippines for both estate and donor taxes.
• 😀 The estate tax and donor tax rates are both 6% flat, according to the TRAIN law, replacing the previous more complex graduated rates.
• 😀 Gross estate includes real properties, personal properties, and intangible properties, all of which are taxed according to their location and the taxpayer's residency status.
• 😀 Real properties are valued at the higher of the fair market value determined by the commissioner or the schedule of values set by provincial and city assessors.
• 😀 Personal properties are valued based on whether they are newly acquired (current market price) or previously acquired (second-hand market price).
• 😀 Loans or pawned items are valued by grossing up their pawn value to reflect the full loan value, excluding interest.
• 😀 For foreign currencies, the value is converted into Philippine pesos using the exchange rate at the time of the decedent's death.
• 😀 The use of usufruct rights in property can be valued by considering the life expectancy of the beneficiary, with valuation calculations based on the present value of future benefits.
• 😀 The right to usufruct can be temporary or lifelong. In the case of lifelong usufruct, the beneficiary is entitled to use the property for the remainder of their life, with the value of that right being calculated accordingly.

Q & A

What is the situs of taxation in the context of estate tax and donor's tax?

The situs of taxation refers to the place where property or estate is taxed. For estate tax and donor's tax, if the decedent or donor is a resident citizen or resident alien, all properties—whether situated in the Philippines or abroad—are taxable. Non-resident aliens are only taxed on properties located in the Philippines.

How are resident citizens taxed on their properties for estate tax purposes?

Resident citizens are subject to global taxation, meaning all their properties, regardless of where they are located (within or outside the Philippines), will be included in the computation of their gross estate.

What is the tax implication for non-resident citizens and OFWs regarding their properties?

Non-resident citizens, including overseas Filipino workers (OFWs) and seamen, are also subject to global taxation. Even though they reside abroad, their properties in the Philippines and elsewhere are considered part of their gross estate or gross gift for tax purposes.

How are non-resident aliens taxed differently from resident citizens and non-resident citizens?

Non-resident aliens are only taxed on properties located within the Philippines. Unlike resident citizens and non-resident citizens, they are not taxed on properties situated abroad.

What is the estate tax rate under the TRAIN law?

Under the TRAIN (Tax Reform for Acceleration and Inclusion) law, the estate tax rate is a flat 6%, which applies to both estate tax and donor's tax, replacing the previous graduated tax rates.

How do you compute the gross estate of a deceased person?

To compute the gross estate, you start with the value of the properties—real, personal, and intangible properties—of the decedent. For real properties, the higher of the fair market value determined by the commissioner or the schedule of values fixed by the local government is considered. Personal properties are valued based on their market price at the time of death.

What method is used to value real properties for estate tax purposes?

For real properties, the valuation is based on the fair market value at the time of death. The value to consider is the higher of the market value determined by the commissioner or the schedule of values fixed by provincial or city assessors.

How are personal properties valued for estate tax purposes?

Personal properties are valued based on their current market price if recently acquired. For previously acquired properties, the second-hand market price is used. For pawned items, the loan value is grossed up to reflect the full value, excluding interest.

What is the 'reciprocity rule' for valuing intangible properties for non-resident aliens?

The reciprocity rule states that if the country where a non-resident alien resides imposes estate tax but exempts Filipinos living there from taxation on their intangible properties, then that non-resident alien will also be exempted from estate tax in the Philippines on their intangible properties.

What is the process for valuing the use of franchise rights and how does it apply in estate tax?

The value of the right to use a property (use of franchise rights) is calculated based on the probable life expectancy of the beneficiary, using the basic standard mortality table. For example, if someone inherits the right to use a property for a set period, the present value of those rights is included in the gross estate of the decedent.