In this blog, we’ll explore how to compute the cost of transferring a land title and what you need to know. Understanding this process can help you avoid unexpected expenses and ensure a smooth transaction.
Imagine your cousin sells her land for P3 million after taxes. This means she gets P3 million, and you cover all the expenses, from notarial fees to title registration. Knowing how to calculate the transfer cost will help you budget accurately and avoid surprises.
Estimating Transfer Costs
There’s a reliable method for estimating the transfer cost. Industry standards suggest that the transfer cost typically ranges from 10% to 12% of the property’s selling price. Let us use 11%. This estimate includes notarial fees, taxes, and registration fees. For accurate budgeting, consult local real estate professionals or legal advisors familiar with current rates.
P3,000,000 x 11% = P330,000. This is a typical estimate for the transfer cost of the property.
So, your total cost for the property would be P3,330,000, which includes buying the land and registering it in your name. Knowing this total cost helps you plan your finances better and avoid unexpected costs.
Understanding Tax Base
The tax base is determined by the Bureau of Internal Revenue (BIR) based on three values:
1. Gross Selling Price
2. Zonal Value (as assessed by the BIR, available on their website or local BIR office)
3. Fair Market Price (typically based on recent market transactions)
The BIR uses the highest of these values as the tax base. This method ensures that the tax assessment is fair and reflects the true value of the property. For more details on how the BIR calculates this, refer to their guidelines (https://www.bir.gov.ph).
Gross Selling Price | P3,000,000 |
Zonal Value | P2,500,000 |
Fair Market Price | P2,300,000 |
The BIR will get the tax base on WHICHEVER IS HIGHER among the three. In our case, it is the Gross Selling Price as stated in the Deed of Sale: P3,000,000.
PROCEDURE
STEP 1. VISIT A NOTARY PUBLIC
> Drafting of the Deed of Sale
> Signing of the Deed of Sale
> Notarial of the Deed of Sale
HOW MUCH IS THE NOTARIAL FEE?
> Range: 1% to 5% of the Gross Selling Price stated in the Deed of Sale
> Usually, a good lawyer will charge at 2%
Notarial Fee: P3,000,000 x 2% = P60,000
STEP 2. VISIT THE BIR
> Submit the notarized Deed of Sale
> BIR computes the Capital Gains Tax and Documentary Stamp Tax
HOW MUCH?
> Capital Gains Tax - 6% (P180,000)
> Documentary Stamp Tax - 1.5% (P45,000)
You will be issued a Certificate Authorizing Registration (CAR)
STEP 3. VISIT THE TREASURER OFFICE
> Submit CAR and related documents for the computation of the Transfer Tax
HOW MUCH?
> 75% of 1% of tax base (Metro Manila)
> 50% of 1% of tax base (Outside Metro Manila)
Note: Get the local taxation rate where the property is located.
STEP 4. VISIT THE REGISTRY OF DEEDS
> Submit all documents
> Pay for Registration Fee HOW MUCH?
> Estimates: 0.5% of tax base
Schedule of Fee based on LRA Circular No. 11-2002
Based on the schedule, the highest amount is:
1,680,000.00 - 1,700,000.00 = P8,796.00
Note: In excess of P1,700,000.00, the addition to the fee of P8,796.00 is P90.00 per P20,000.
For example: Tax base P3,000,000
3,000,000 minus 1,700,000 = 1,300,000
1,300,000 divided by 20,000 = 65
Now, 65 x 90 = 5,850
So, P8,796 + P5,850 = P14,646 <-- Transfer Tax
Short-cut: P3,000,000 x 0.005 = P15,000 (estimates)
SUMMARY OF EXPENSES
ITEMS | PERCENTAGE | AMOUNT |
Notarial Fee | 2% | P60,000 |
Capital Gains Tax | 6% | P180,000 |
Documentary Stamp Tax | 1.5% | P45,000 |
Transfer Tax | 50% of 1% | P15,000 |
Registration Fee | 0.5% | P15,000 |
TOTAL | 10.5% | P315,000 |
OTHER EXPENSES
> Certified True Copy of Title
> Tax Declaration of Property
> Certificate of No Improvement
> Tax Clearance
> Verification of TIN Number
> Transportation and snacks
It’s a good idea to budget around 11% of the tax base for all expenses. This provides a comprehensive view of the costs involved and helps avoid surprises.
If you hire someone to handle the transfer for you, budget P10,000-P15,000, based on typical rates from real estate agents and service providers. For DAR certification, expect to budget around P25,000. These estimates are based on industry averages and can vary depending on the specific services and location.
This discussion is for educational purposes only. Consult your lawyer for advice on your specific case. For any questions, contact us.
If you’re planning to buy a residential lot, house-and-lot, or condo unit, get in touch with us at 0920 207 5035 or email cebuhousefinder@yahoo.com for free assistance.
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