Legal Documents and BIR Process for Transferring Property from Parent to Child in the Philippines

Introduction

In the Philippines, transferring real property from a parent to a child is a common estate planning strategy aimed at ensuring smooth succession, minimizing future disputes, and optimizing tax implications. This process is governed by various laws, including the Civil Code of the Philippines (Republic Act No. 386), the National Internal Revenue Code (NIRC) as amended by the Tax Reform for Acceleration and Inclusion (TRAIN) Law (Republic Act No. 10963) and subsequent reforms, the Family Code, and regulations from the Bureau of Internal Revenue (BIR), Registry of Deeds (RD), and local government units (LGUs). The transfer can occur during the parent's lifetime (inter vivos) or upon death (mortis causa), each with distinct legal documents, procedures, and tax obligations.

Key considerations include the type of property (titled land, improvements, or untitled), the relationship between donor and donee (parent-child qualifies for certain exemptions or reduced rates), potential simulation of transfers (e.g., a disguised donation as a sale), and compliance with anti-money laundering laws. Non-compliance can lead to penalties, invalidation of the transfer, or additional taxes. This article comprehensively outlines the legal documents required and the BIR processes involved, emphasizing Philippine jurisprudence and administrative requirements.

Modes of Property Transfer

Property transfers from parent to child typically fall into three categories: donation (inter vivos), sale (inter vivos), and succession (mortis causa). Each mode has unique documentation and BIR involvement, primarily for tax clearance and payment.

1. Inter Vivos Donation

A donation is a gratuitous transfer where the parent (donor) gives the property to the child (donee) without valuable consideration. Under Article 725 of the Civil Code, donations of real property must be in a public instrument to be valid. This is the most straightforward method for lifetime transfers but attracts donor's tax.

Required Legal Documents

Deed of Donation (DoD): A notarized public document detailing the property description (from the title, tax declaration, or survey plan), parties involved, acceptance by the donee (must be in the same document or a separate public instrument if not simultaneous), and any conditions. It must include the donor's marital status and spousal consent if applicable (under the Family Code, Article 98, for conjugal property). For immovable property exceeding PHP 500,000 in value, it requires witnesses.
Original Certificate of Title (OCT) or Transfer Certificate of Title (TCT): The parent's title to the property.
Tax Declaration: From the local assessor's office, showing the property's assessed value.
Latest Real Property Tax Receipt/Clearance: Proof of payment from the local treasurer's office.
Certificate Authorizing Registration (CAR): Issued by BIR after tax payment.
Barangay Certification: If the property is in a rural area, confirming no adverse claims.
Affidavit of Acceptance: Integrated into the DoD or separate, signed by the child.
Special Power of Attorney (SPA): If any party is represented by an agent.
Proof of Relationship: Birth certificate of the child to establish filiation, qualifying for tax exemptions.
Zonal Valuation: BIR-issued fair market value (FMV) for tax computation.

If the donation is onerous (with burdens), it may be treated partly as a sale.

BIR Process

The BIR handles donor's tax under Section 98 of the NIRC. The tax is imposed on the donor, computed on the FMV or zonal value (whichever is higher), less allowable deductions.

Valuation and Computation: Determine the property's FMV using BIR zonal values (available via Revenue District Office or BIR website). Donor's tax rate is 6% on the net gift (FMV minus deductions/exemptions). For parent-to-child transfers, the first PHP 250,000 per year is exempt (per donee), and there's no aggregation for multiple donations to the same child.
Filing and Payment: Within 30 days from notarization of the DoD, file BIR Form 1800 (Donor's Tax Return) at the Revenue District Office (RDO) where the donor resides. Attach the DoD, title, tax declaration, and proof of relationship. Pay the tax via authorized banks or eFPS (Electronic Filing and Payment System).
Issuance of CAR: Upon verification, BIR issues the CAR, which is essential for registering the transfer with the RD. If the donation exceeds PHP 5 million, it may require a Sworn Declaration of Intent (for exemption claims).
Post-BIR Steps: Submit CAR to the RD for annotation and issuance of a new TCT in the child's name. Pay Documentary Stamp Tax (DST) at 1.5% of FMV or consideration (BIR Form 2000). Transfer tax (0.5-0.75% of FMV) and registration fees to LGU/RD.

Common issues: Revocation of donation (possible within 4 years for ingratitude under Article 765, Civil Code) or if it's in fraud of creditors.

2. Inter Vivos Sale

This involves transferring property for a valuable consideration, often used when parents want to simulate a transfer to avoid donor's tax, but BIR scrutinizes if it's undervalued (potentially reclassified as donation). Governed by Articles 1458-1637 of the Civil Code.

Required Legal Documents

Deed of Absolute Sale (DoAS): Notarized public document with property details, sale price, payment terms, warranties against eviction, and spousal consent if needed. Must be absolute, not conditional unless specified.
OCT/TCT: Parent's title.
Tax Declaration and Real Property Tax Clearance.
CAR from BIR.
Receipt of Payment: Official receipt or acknowledgment of consideration.
Proof of Relationship: Optional but useful if claiming exemptions.
Capital Gains Tax (CGT) Return: BIR Form 1706.
Other: SPA if applicable; Certificate of No Improvement if bare land.

If the sale is to a child and undervalued, BIR may impose donor's tax on the excess (difference between FMV and sale price).

BIR Process

Sales attract CGT under Section 24(D) of the NIRC, at 6% of the gross selling price or FMV (whichever higher), unless it's the principal residence (exempt if reinvested within 18 months).

Valuation: Use zonal value or FMV.
Filing and Payment: Within 30 days from notarization, file BIR Form 1706 at the RDO where the property is located. Attach DoAS, title, tax declaration. Pay CGT and DST (1.5%).
CAR Issuance: BIR verifies no underdeclaration; issues CAR.
Post-BIR: RD registration for new title; pay transfer tax (LGU) at 0.5-0.75%.

Jurisprudence (e.g., CIR v. Primetown Property Group): BIR can reclassify simulated sales.

3. Mortis Causa Transfer (Succession)

Upon the parent's death, property transfers via testate (with will) or intestate succession. Governed by Articles 774-1105 of the Civil Code and estate tax under Section 84 of the NIRC.

Required Legal Documents

Last Will and Testament: If testate, a notarized will (holographic or notarial) specifying the child as heir/devisee. Must be probated.
Death Certificate: From PSA (Philippine Statistics Authority).
Extrajudicial Settlement of Estate (ESE): If no will and no debts, a public instrument signed by all heirs (including the child), published once a week for 3 weeks, with bond if minors involved.
Affidavit of Self-Adjudication: If sole heir (the child).
Inventory of Properties: Listing all assets.
CAR from BIR.
Proof of Filiation: Birth certificate.
Waiver of Rights: If other heirs waive in favor of the child.
Court Order: For judicial settlement if disputes or debts.

For legitimes: Under Article 886, legitimate children are entitled to 1/2 of the estate as compulsory heirs.

BIR Process

Estate tax is 6% on the net estate (FMV minus deductions like funeral expenses, debts).

Notice of Death: File within 2 months if gross estate > PHP 200,000.
Estate Tax Return: BIR Form 1801, filed within 1 year from death (extendable). Attach death certificate, will/ESE, titles, appraisals.
Valuation: BIR appraises or uses zonal values.
Payment and CAR: Pay tax; BIR issues Electronic CAR (eCAR).
Post-BIR: Probate court (if testate) or RD for title transfer. Pay DST if applicable.

Extensions and installments possible if hardship. Penalties for late filing: 25% surcharge, interest.

Other Considerations

Registration with Registry of Deeds: Mandatory for all modes to bind third parties (Article 709, Civil Code). Fees: 0.25% of value.
Local Government Taxes: Capital gains exempt from local transfer tax if BIR taxes paid.
Special Cases: Agricultural land (CARP compliance via DAR clearance); Condominiums (additional HOA docs); Foreign parents (restrictions under Constitution on land ownership).
Tax Exemptions/Amnesties: Check current BIR rulings (e.g., estate tax amnesty under RA 11213, extended periodically).
Common Pitfalls: Incomplete docs lead to BIR rejection; undervaluation triggers audits; failure to pay taxes voids transfer.
Professional Advice: Consult a lawyer or CPA, as laws evolve (e.g., CREATE Law adjustments to rates).

This covers the exhaustive legal and procedural framework, ensuring compliance for a valid, tax-efficient transfer.