In the Philippines, the act of donating property is not merely a gesture of generosity but a formal legal contract known as a Donation Inter Vivos. When a donor chooses to transfer real estate to a niece or nephew, the process is governed by the Civil Code of the Philippines and the National Internal Revenue Code (NIRC).
Below is a comprehensive guide on the requirements, formalities, and tax implications of such a transfer.
1. Essential Requisites for a Valid Donation
For a donation to be legally binding, three elements must coexist:
- Capacity of the Donor: The donor must have the legal capacity to dispose of their property and the free disposal of the asset.
- Donative Intent: The donor must have the clear intention to transfer ownership of the property out of pure liberality (gratuitously).
- Acceptance by the Donee: The niece or nephew must formally accept the donation. Under Philippine law, a donation is not perfected until the donor is notified of the donee's acceptance.
2. Formal Requirements (The "Public Instrument" Rule)
Because the subject matter is real property (immovable property), the law is strict regarding form. Under Article 749 of the Civil Code, the following must be observed:
- The Deed of Donation: The donation must be made in a public document (notarized). It must specify the property donated and any charges or conditions imposed on the donee.
- Formal Acceptance: The acceptance by the niece or nephew can be made in the same Deed of Donation or in a separate public document.
- Notification: If the acceptance is made in a separate instrument, the donor must be notified in an authentic form, and this step must be noted in both instruments.
3. Tax Implications: The Donor’s Tax
Under the TRAIN Law (Republic Act No. 10963), the taxation for donations has been simplified.
- Flat Rate: The Donor’s Tax is now a flat rate of 6% on the total value of the net gifts made during a calendar year.
- Exemption Threshold: The first PHP 250,000 of the total gifts made within a calendar year is exempt from tax.
- Relationship Status: Previously, donations to "strangers" (which included nieces and nephews) were taxed at 30%. However, under the current TRAIN Law, the 6% flat rate applies regardless of whether the donee is a relative or a stranger.
4. Documentary Requirements for Title Transfer
Once the Deed of Donation is signed and notarized, the following documents are typically required by the Bureau of Internal Revenue (BIR) and the Registry of Deeds to transfer the title:
| Document | Purpose |
|---|---|
| Deed of Donation | The legal basis for the transfer (must be notarized). |
| Certified True Copy of the Title | To prove current ownership and description of the land. |
| Tax Declaration | For the computation of the property's Fair Market Value (FMV). |
| BIR Form 1800 | The Donor’s Tax Return form. |
| Certificate Authorizing Registration (CAR) | Proof that the donor’s tax has been paid; issued by the BIR. |
| Tax Clearance | Issued by the local Treasurer’s Office to prove real property taxes are paid. |
5. Limitations on Donation
It is crucial to note that a donor cannot give away everything if they have compulsory heirs (e.g., children or a spouse).
Important Note: Under the Law on Succession, a person may only donate what they can dispose of by will. If a donation to a niece or nephew impairs the legitime (the portion of the estate reserved by law for compulsory heirs), the donation is considered "inofficious" and may be reduced or revoked upon the donor's death.
6. Procedural Steps for the Transfer
- Drafting and Notarization: Prepare the Deed of Donation and have it notarized.
- Payment of Taxes: File the Donor’s Tax return and pay the 6% tax at an Authorized Agent Bank within thirty (30) days from the date of the donation.
- Securing the CAR: Submit the proof of payment to the BIR to receive the Certificate Authorizing Registration.
- Transfer Tax and Registration: Pay the local Transfer Tax at the City or Municipal Treasurer’s Office.
- Entry into Registry of Deeds: Submit the CAR, the Deed, and the old Title to the Registry of Deeds for the issuance of a new Transfer Certificate of Title (TCT) in the name of the niece or nephew.