Capital Gains Tax on Title Transfer in the Philippines: Does CGT Cover the House or Only the Land?

Executive Summary

In the Philippines, Capital Gains Tax (CGT) on the sale or transfer of real property that is a capital asset is a final tax of 6% computed on the higher of (1) the gross selling price in the deed or (2) the fair market value (FMV). CGT covers both the land and the improvements (e.g., the house)—not just the land. “Improvements” include buildings, houses, and other permanent structures attached to the land. The 6% is paid per disposition and is generally due within 30 days from the date of sale or transfer, as part of the BIR Certificate Authorizing Registration (CAR) process required before the Registry of Deeds will issue a new title.

Legal Foundations & Scope

What is taxed

Tax type: Final capital gains tax at 6%.
Tax base: The higher of:
- Gross Selling Price (GSP) stated in the deed; or
- Fair Market Value (FMV) at the time of sale.
What property is covered: Real property located in the Philippines classified as a capital asset (i.e., not used in trade or business and not held primarily for sale by real estate dealers/developers).
Who is covered:
- Individuals (citizens and resident aliens) and estates/trusts selling capital-asset real property.
- Domestic corporations selling land and/or buildings treated as capital assets are likewise subject to 6% final tax.
- Foreign corporations are typically not subject to the 6% final tax on Philippine real property; they are taxed under regular income tax rules on net income.

Land and House (Improvements)

CGT applies to “land and/or buildings”. If you are selling a lot with a house, the base includes the combined FMV of both the land and the house (or the GSP, if higher).
Why titles can confuse people: A Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT) usually evidences ownership of land or a condo unit. The house on titled land often has a separate tax declaration (not a separate “title”). Even if the deed mentions only the land title number, the house is an “improvement” and is still part of the taxable property for CGT purposes.

Determining the Tax Base (Land + Improvements)

Fair Market Value (FMV) components

Land: Use the BIR Zonal Value (if available). If none, use the Assessor’s FMV.
Improvements (House/Building): Use the Assessor’s FMV for improvements as of the quarter of sale.
Total FMV: Add the FMV of land and improvements. Compare this total with the GSP in the deed; use the higher as the CGT base.

Common scenarios

Sale of land with a house: 6% on higher of (GSP) vs (zonal value of land + assessor’s FMV of house).
Sale of land only (no improvements): 6% on higher of (GSP) vs (zonal/assessor value of land).
Sale of house/improvement only (e.g., on leased land): Still real property; 6% on higher of (GSP) vs (assessor’s FMV of the improvement).
Condominium unit (with or without parking): Condo units are real property. 6% on higher of (GSP) vs (assessor’s FMV). Parking slots with separate CCTs are independent properties.

When CGT Does Not Apply

Ordinary assets: If the property is used in business (e.g., the building was depreciated; or you are a real estate dealer/developer), the asset is ordinary, not capital. The sale is not subject to the 6% CGT. Instead, it is subject to:
- Regular income tax on net income (graduated rates for individuals; corporate income tax for corporations),
- VAT (if applicable) or percentage tax, and
- Creditable withholding tax (CWT) by the buyer (typical for ordinary-asset transactions).
Transfer by donation or inheritance: Donor’s tax or estate tax, not CGT.
Sale to the Government: Individuals may elect either the 6% CGT or taxation under regular income tax rates on actual net gain (an exception to the final 6% rule).

Compliance Timeline & Process

Deadlines & forms

CGT return: File and pay within 30 days from date of sale/transfer.
- Form: BIR Form 1706 (Capital Gains Tax Return—Real Property).
Documentary Stamp Tax (DST): Pay on or before the 5th day of the month following the date of the taxable document (practically processed together with CGT for CAR issuance).
- Form: BIR Form 2000-OT.
Certificate Authorizing Registration (CAR): Issued by BIR after CGT and DST (and any applicable surcharges/interest) are paid. No CAR, no new title at the Registry of Deeds.

Required documents (typical)

Notarized Deed of Absolute Sale (or exchange, dación en pago, etc.).
Transfer Certificate of Title/Condominium Certificate of Title, latest Tax Declarations (land and improvements).
IDs/TINs of parties, SPA if by representative.
Proof of CGT and DST payments.
Real property tax (RPT) clearance or latest receipts (arrears must be cleared).
Other LGU clearances where required.

Installment sales & deferred payments

The taxable event is the transfer/disposition. CGT is generally computed on the full base (higher of GSP vs total FMV) and paid within 30 days of the deed—even if the price is payable in installments (unless the parties structure the sale so the transfer occurs later).

Local Taxes, Fees, and Other Costs (Usually Buyer-side)

Documentary Stamp Tax (DST): Generally ₱15 per ₱1,000 (or fraction) of the higher of GSP or FMV.
Local Transfer Tax: Typically up to ~0.5%–0.75% of the higher of GSP or FMV, depending on the LGU.
Registration Fees: Payable to the Registry of Deeds for issuance of the new title.
RPT (Amilyar): Any unpaid RPT is usually settled prior to transfer.

Note: Allocation of costs (who pays what) is contractual; however, market practice often has seller paying CGT and buyer paying DST, local transfer tax, and registration fees—unless the parties agree otherwise.

Special Topics & Edge Cases

Principal residence exemption (individuals)

Exemption from 6% CGT is available to an individual on the sale of his/her principal residence if:
1. The proceeds are fully utilized in acquiring or constructing a new principal residence within 18 months from the sale;
2. The seller notifies the BIR within 30 days from the sale of the intent to avail; and
3. The relief is availed only once every 10 years.
Shortfall rule: Any portion of the proceeds not used for the new principal residence becomes proportionately subject to CGT.

Exchanges, partitions, mortgages, and foreclosures

Property-for-property exchanges (swaps) and dación en pago are dispositions that can trigger CGT based on FMV.
Co-owner partitions are not sales, but equalization payments (owelty) may be taxable.
Foreclosure/redemption can have CGT consequences at adjudication; details depend on structure and timing.

Reclassification (ordinary ↔ capital)

Ordinary assets are properties used in trade or business or held for sale by dealers/developers. Capital assets are all other properties.
Taxpayers who claimed depreciation or used the property in business generally have ordinary assets; selling them does not attract 6% CGT but regular income tax/VAT/CWT rules instead.
“Converting” to capital status typically requires actual withdrawal from business use and documented non-business use for a meaningful period—mere intent is insufficient.

Non-residents and corporations

Non-resident individuals selling Philippine real property classified as capital assets are generally subject to 6% CGT on the higher of GSP or FMV.
Foreign corporations selling Philippine real property are typically not under the 6% final CGT regime and instead are taxed on net income under regular corporate income tax rules.

Practical Answers to Common Questions

1) Does CGT cover the house, or only the land? It covers both. CGT applies to the land and the improvements (e.g., the house) treated as a single real-property disposition.

2) What if the house has no separate “title”? Normal. The house is usually covered by a tax declaration, not a separate TCT. It’s still an improvement and part of the property for CGT.

3) What value is used for the house? The Assessor’s FMV for the improvement as of the sale date. Add it to the land’s zonal/assessor value, then compare the total FMV to the GSP; tax the higher.

4) Who typically pays CGT? By practice, the seller. But parties can stipulate otherwise.

5) Is the 6% computed on net gain? No. It’s a final tax on the gross (higher of GSP vs FMV), not on net gain.

6) What if I sell to the government? Individuals may choose between the 6% CGT or regular graduated income tax on the actual net gain.

7) I’m a developer or I used the property in business—do I pay 6% CGT? Likely no. That’s an ordinary asset sale: regular income tax (on net), possible VAT, and CWT rules apply; no 6% CGT.

8) When is CGT due? Within 30 days from the date of sale/transfer, as part of the CAR process.

Step-by-Step Transfer Checklist

Draft & notarize the deed (sale, exchange, dación, etc.).
Secure TINs for both parties; prepare IDs, title, and tax declarations (land & improvements).
Obtain Assessor’s certifications (current FMVs) and check BIR zonal value for the land.
Compute base: higher of GSP vs (zonal land value + assessor’s house value).
File and pay:
- CGT (BIR Form 1706) within 30 days of sale;
- DST (BIR Form 2000-OT) on schedule (commonly processed alongside CGT).
Apply for CAR with the BIR (submit deed, IDs, title, tax declarations, RPT receipts, proof of tax payments, and other required attachments).
After release of CAR, pay local transfer tax and Registry of Deeds fees.
Transfer title (TCT/CCT) and update tax declarations to buyer’s name.

Key Takeaways

Yes—CGT covers the house and the land.
Rate: 6% final tax.
Base: Higher of GSP vs total FMV (land + improvements).
Timing: Generally within 30 days of sale for CGT filing/payment.
Exception: Ordinary asset sales are not subject to 6% CGT.
CAR is essential before title transfer.

This article provides a general overview and is not a substitute for tailored legal or tax advice. Specific facts (e.g., zoning, valuations, business use, installment terms) can materially affect the tax treatment.