Perhaps one of the most common TV and movie tropes that is quintessentially Filipino is the “agawan ng mana”. This makes for entertainment that pushes the Filipino viewer to the edge of his seat. Rightfully so, settling the estate of the decedent among the heirs is common among Filipino families, not to mention the stress in complying with documentary requirements just so properties could be transferred properly and legally to the heirs. On the other hand, the government, in recent times, has promulgated tax amnesties for the purpose of settling estates of deceased persons.
If we strip away the drama and ruckus we see on TV and movies, there are some families who choose to settle their differences amicably. As a result, some family members renounce or give up their partial shares in the inheritance of the deceased in favor to the other heirs. This includes special circumstances such as when it would be impractical to divide a residential house and lot among four heirs, or when an heir has settled abroad with no intention to return to the Philippines, leaving behind shares of stock in a domestic corporation, or when the heir voluntarily renounces a portion of the inheritance. The question remains: does the renouncing heir have any liability to pay tax, if any?
The short answer: it depends.
Suppose decedent Juan dela Cruz left behind three legal heirs Maria, Jesus, and Jose inheritance as follows: (1) cash, (2) shares of stock in their sugar manufacturing corporation, (3) residential (ancestral) house and lot and (4) the family car. As per the decedent’s last will and testament, the inheritance is to be equally divided among the three legal heirs. Therefore, each legal heir shall own a third of the estate.
Assume now that Maria is the eldest among the three legal heirs and is also ailing. To save on transfer taxes, not to mention the mountain of documentary requirements she has to process to transfer the legal title of said inheritances, she decided to renounce her part of inheritance in full. What then, if any, are her tax liabilities?
Under Section 12 of Bureau of Internal Revenue (BIR) Revenue Regulation (RR) No. 12-2018, the general renunciation of Maria is exempt from the imposition of donor’s tax. However, this is only true when Maria does not specify to which of the remaining heirs the renounced portion of the inheritance goes. If, say, Maria renounces her inheritance in full in favor of Jesus, then the said renunciation shall be subject to six percent (6%) donor’s tax in excess of the Php 250,000.00 annual gift threshold under the Tax Code.
Now, let us assume that Maria is an overseas Filipino worker, who only returns to her ancestral home once every three years due to her work requirements. After the death of Juan dela Cruz, she has decided to renounce only a part of her inheritance—that is, her share in the residential house and lot left behind by the decedent. The said renunciation means that she shall inherit a third of all other properties except for the residential house and lot, which will now be divided equally between heirs Jesus and Jose. What then, are Maria’s tax liabilities?
The above scenario presents a case of partial renunciation of inheritance subject to the 6% donor’s tax in excess of the Php 250,000.00 annual gift threshold set by the Tax Code. As stated in the newly issued BIR Revenue Memorandum Circular (RMC) No. 94-2021, dated August 10, 2021, the partial renunciation of an heir of his inheritance shall be subjected to donor’s tax. Therefore, Maria’s renunciation of her share in the residential house and lot is an implied donation to both Jesus and Jose and shall be subjected to 6% donor’s tax in excess of the Php 250,000.00 threshold.
In summary, the general renunciation of the heir of his share in the inheritance of the estate of the deceased is a transaction exempt from donor’s tax, unless the renunciation is made in favor of a specific heir or there is partial renunciation of the portion of the said inheritance, which are both considered donations subject to the 6% donor’s tax, in excess of the annual gift threshold.
With the release of RMC No. 94-2021, BIR Revenue District Offices are tasked to do the checking of any implied donations prior to processing of Certificates Authorizing Registration.
It would be wise to consult an estate planner, tax advisor, or lawyer before settling any estate and/or donor’s tax liabilities before the BIR. Most importantly, to avoid the drama, talk and consult with your fellow heirs in the estate. In this manner, there is less “Akin lang ang mana!” and more “Bayad na ang tax, peace na tayo!”
As published in Mindanao Times, dated 20 October 2021