The transition of property from a decedent to their heirs is rarely a simple hand-off. In the Philippine legal and tax landscape, this process is governed by a rigorous assessment of Estate Tax and, eventually, potential Capital Gains Tax (CGT). Understanding the distinction between these two is vital to avoiding "tax surprises" that can stall the transfer of titles for generations.

I. The Estate Tax: The "Price" of Succession

The Estate Tax is not a tax on the property itself, but on the privilege of the deceased to transmit their estate to lawful heirs.

1. The Rate and the TRAIN Law

Prior to 2018, the Philippines used a complicated graduated tax table. However, under Republic Act No. 10963 (TRAIN Law), effective January 1, 2018, the system was simplified:

Rate: A flat 6% applied to the value of the Net Estate.
Applicability: This applies to deaths occurring on or after January 1, 2018. For deaths prior to this date, the old graduated rates (ranging from 5% to 20%) still apply unless the estate qualifies for the Estate Tax Amnesty.

2. Computing the Net Estate

The "Net Estate" is calculated by taking the Gross Estate (all property at the time of death) and subtracting "Allowable Deductions."

Category	Deduction Limit (TRAIN Law)
Standard Deduction	₱5,000,000
Family Home	Up to ₱10,000,000
Claims against the Estate	Fully deductible (if notarized/validated)
Transfer for Public Use	Fully deductible

Note: For non-resident aliens, the standard deduction is limited to ₱500,000, and other deductions are prorated.

II. Valuation: How the BIR Sees Your Property

The Bureau of Internal Revenue (BIR) does not care what you think the property is worth. For tax purposes, the property is valued at the time of death based on the higher of:

The Fair Market Value (FMV) as determined by the Commissioner (Zonal Value); or
The FMV as shown in the schedule of values fixed by the Provincial and City Assessors (Tax Declaration).

III. Capital Gains Tax (CGT): The Post-Inheritance Hurdle

A common misconception is that heirs must pay Capital Gains Tax to receive an inheritance. This is incorrect. CGT only applies when the heir decides to sell the inherited property.

1. The Trigger

If you inherit a house (and pay the Estate Tax), you now own it. If you later sell that house, and it is classified as a capital asset (meaning you aren't in the real estate business), you must pay a 6% Capital Gains Tax on the Gross Selling Price or the current Zonal Value, whichever is higher.

2. The "Stepped-Up" Basis

In many jurisdictions, this is known as a basis adjustment. In the Philippines, the "cost" of the property for the heir (for purposes of future CGT) is the FMV at the time of the decedent's death.

Example: > * Parent bought land in 1990 for ₱500,000.

Parent dies in 2024 when the land is worth ₱5,000,000 (Estate Tax paid on 5M).

Heir sells land in 2026 for ₱6,000,000.

The CGT is calculated on the ₱6,000,000 sale, but for internal accounting of gain, the "cost" was already "stepped up" to ₱5,000,000 upon inheritance.

IV. The Procedural Gateway: The eCAR

No property can be legally transferred to an heir's name at the Registry of Deeds without an Electronic Certificate Authorizing Registration (eCAR).

To get this, the heirs must:

File the Estate Tax Return (BIR Form 1801).
Pay the tax at an Authorized Agent Bank (AAB).
Submit supporting documents: Death Certificate, Titles, Tax Declarations, and the Extrajudicial Settlement (EJS) or Judicial Partition.

V. The Estate Tax Amnesty: A Golden Opportunity

For families who have neglected to settle estates for decades, Republic Act No. 11956 (extending the amnesty until June 14, 2025) is a critical lifeline. It allows heirs to settle unpaid estate taxes for deaths occurring on or before May 31, 2022, at a flat rate of 6% on the net undeclared estate, without penalties or interest. This is particularly beneficial for old estates that would otherwise be buried under decades of surcharges.

VI. Summary Table: Estate Tax vs. CGT

Feature	Estate Tax	Capital Gains Tax (CGT)
Taxable Event	Death of the owner	Sale/Transfer of the property
Tax Rate	6% of Net Estate	6% of Gross Sales/Zonal Value
Who Pays?	The Estate (Heirs)	The Seller (Heir-turned-Seller)
Basis	Value at time of death	Higher of Sales Price or Zonal Value

Failure to settle the Estate Tax promptly results in a 25% surcharge and 12% annual interest, making the prompt filing of BIR Form 1801 (within one year of death) one of the most important financial duties of an heir.