Local Transfer Tax on Real Property

Overview

Local Transfer Tax (LTT) is a municipal or city tax levied on the transfer of ownership of real property located within a Local Government Unit's (LGU's) territorial jurisdiction. It is distinct from the national Documentary Stamp Tax (DST) and is authorized under Section 135 of the Local Government Code (Republic Act 7160, as amended). The LGU where the property is situated has the power to impose and collect this tax.

Legal Basis

The authority for LGUs to impose Local Transfer Tax is found in Section 135 of the Local Government Code (RA 7160). The tax rate is limited to a maximum of 0.5% of the assessed value of the real property being transferred (LGC §135). This cap ensures that LTT does not become confiscatory and remains predictable for property owners and investors.

Scope and Applicability

Local Transfer Tax applies to all transfers of ownership of real property, including but not limited to:

• Sales and absolute transfers
• Exchanges of real property
• Transfers by inheritance or succession (in some LGU ordinances)
• Transfers in trust or on condition
• Transfers as part of a corporate reorganization or merger

The tax is based on the assessed value of the property as determined by the LGU's assessor's office, not the actual selling price. This is a key distinction from national taxes, which may use fair market value or selling price.

Rate and Computation

The maximum rate is 0.5% of the assessed value. However, individual LGUs may impose a lower rate through local ordinance. For example, a municipality may impose LTT at 0.25% or 0.3% of assessed value. The actual rate applicable depends on the ordinance of the specific LGU where the property is located.

Example calculation: A residential lot in Quezon City with an assessed value of ₱2,000,000 is sold. If Quezon City's LTT rate is 0.5%, the Local Transfer Tax due is ₱2,000,000 × 0.005 = ₱10,000.

Who Pays and When

The transferor (seller) is typically liable for Local Transfer Tax, though some LGU ordinances may impose joint and several liability on both transferor and transferee. The tax must be paid before or at the time of registration of the deed of transfer with the Register of Deeds. Failure to pay may result in the Register of Deeds refusing to register the transfer until proof of payment is presented.

Exemptions and Special Cases

Certain transfers may be exempt from Local Transfer Tax under LGC §135(d), including:

• Transfers by the government or government-owned or controlled corporations (GOCCs)
• Transfers to educational, religious, or charitable institutions (if granted exemption by the LGU)
• Transfers in settlement of debts (in some jurisdictions)

However, exemptions vary by LGU ordinance, so it is essential to consult the specific LGU's tax code.

Relationship to Other Taxes

Local Transfer Tax is separate from and in addition to the national Documentary Stamp Tax (DST) imposed under the National Internal Revenue Code (NIRC §195). A property transfer may be subject to both LTT and DST. Additionally, if the transfer involves a gain, the transferor may owe capital gains tax or income tax under the NIRC.

Compliance and Documentation

To complete a property transfer, the transferor must:

1. Obtain a tax clearance or proof of payment of Local Transfer Tax from the LGU treasurer's office
2. Present this proof to the Register of Deeds when registering the deed of transfer
3. Ensure the deed is properly notarized and contains all required information

The Register of Deeds will not register the transfer without evidence that Local Transfer Tax has been paid.