Estate tax under TRAIN law

When Package 1 of the Tax Reform for Acceleration and Inclusion (TRAIN) was signed into law on December 19, 2017, several amendments were made to the National Internal Revenue Code of 1997.

The law, which took effect on January 1, 2018, affected personal-income taxation, value-added tax, passive income, excise tax, donor’s tax, documentary stamp tax, and estate tax.

In this article, we’ll take a closer look at some of the changes on estate tax under the TRAIN law.

Estate tax rate

Section 22 under the TRAIN law makes an amendment to the estate tax rate covered by Section 84 of the Tax Code. Before, tax based on the value of a decedent’s net estate was calculated based on a tax schedule where an estate valued at P200,000 or more was taxed 5% to 20%. Under the TRAIN law, a flat rate of 6% will now be in effect.

Estate tax deductions

The TRAIN law also amends Section 86 of the Tax Code, which covers deductions permitted to an individual’s gross estate. Section 23 of the new law eliminates medical expenses, judicial expenses, and funeral expenses as acceptable deductions.

The TRAIN law raises the Standard Deduction to P5 million, which was previously only P1 million. In addition, the law now allows nonresident aliens to avail of a standard deduction limited only up to P500,000.

Another significant change affects family homes valued up to P10 million, which are now exempted from estate tax. Previously, only family homes that are worth P1 million were exempted.

Changes to the estate tax settlement procedure

  • Filing of notice of death – The TRAIN law repeals the provision under Section 89 of the Tax Code, which covers the notice of death and its period of filing.
  • Filing of estate tax return – The TRAIN law amends Section 90 of the Tax Code, which includes estate-tax return procedural requirements. Estate-tax returns with a gross value over P5 million require certification from a certified public accountant. Previously, CPA certifications were only required for estate-tax returns exceeding a gross value of P2 million.
  • Payment of estate tax via installment – Payment through installment has been particularly simplified under the TRAIN law. The law however, includes an implied limitation of two years for full estate-tax liability, which was not covered in the previous tax rule.
  • Withdrawals from the deceased’s bank account – In the previous tax rule, withdrawal’s from a deceased person’s account are only limited to up to P20,000. The administrator of the estate or the heirs may withdraw an amount that does not exceed P20,000, once they are authorized by the commissioner. The TRAIN law now removes the P20,000 limit on withdrawals from a deceased person’s, changing it to any amount subject to a 6% final withholding tax.

 

To find out more about estate tax laws in the Philippines, get in touch with the attorneys at Duran & Duran Schulze here.