Capital Gains Tax on the Sale of Untitled Real Property in the Philippines
Everything you need to know (updated to 16 June 2025)
1. The Legal Bedrock
| Provision | Key Point |
|---|---|
| § 24(D), National Internal Revenue Code (NIRC), as amended | Imposes a final tax of 6 % on the gross selling price (GSP) or fair market value (FMV), whichever is higher, on every sale, exchange, or disposition of a capital asset that is land or building located in the Philippines and held by an individual. |
| § 27(D)(5) | Mirrors § 24(D) for domestic corporations, also at 6 % final tax on GSP / FMV of real property classified as a capital asset. |
| Revenue Regulations (RR) 7-2003, 8-2003, 13-99, 17-2003, & Revenue Memorandum Circulars (RMC) 35-2016, 52-2018, 24-2020 | Detail documentary requirements, substitution of FMV, deadlines, and penalties for late payment. |
| Local Government Code (RA 7160) § 135 | Authorizes provinces and cities to collect transfer tax (maximum 1 % of GSP / FMV). |
| Tax Amnesty Act (RA 11213) | Cures open estates and certain unpaid CGT on past sales prior to 2018; still relevant for unregistered transfers of untitled land. |
Important: Neither the TRAIN Law (RA 10963, effective 2018) nor CREATE (RA 11534, 2021) altered the 6 % CGT rate on real property.
2. What Is “Untitled” Property?
No Torrens Certificate (OCT / TCT / CCT) yet issued in the seller’s name.
Ownership evidence typically rests on:
- Tax Declarations or real-property tax receipts (RPTs)
- Spanish-title instruments (composicion, informacion posesoria)
- DENR certifications, cadastral maps, or certificates of land classification
- Possessory or cultivation rights (e.g., CLOA holders under CARP)
Still “real property” in the eyes of the NIRC; the absence of a Torrens title does not exempt the transfer from CGT.
Doctrine: In Spouses Cabrera v. CA (G.R. 129098, 01 June 2001) the Court underscored that tax declarations, while not conclusive of ownership, constitute proof of adverse possession sufficient to sustain real-property taxation.
3. Does Capital Gains Tax Apply?
| Scenario | CGT Outcome |
|---|---|
| Individual sells residential land held for personal use (untitled) | Yes. Treated as sale of capital asset → 6 % CGT. |
| Sale of agricultural land by a farmer whose livelihood depends on it | Yes, unless exempt under agrarian-reform laws (rare). |
| Developer sells untitled property classified as ordinary asset (e.g., inventory) | No CGT. Instead, regular income tax + 12 % VAT (if thresholds met) + 1 %/2 % creditable withholding tax. |
| Sale to the Government / GOCC | If for right-of-way or infrastructure, CGT may be withheld by government as part of transaction; some acquisitions covered by tax-free special laws. |
| Sale of principal residence | Possible CGT exemption under § 24(D)(2) if proceeds are fully reinvested in another principal home within 18 months and BIR Form 1904 is filed within 30 days. Untitled-status per se is not disqualifying. |
4. How the 6 % CGT Is Computed
CGT = 6 % × Higher of:
a) Gross Selling Price (per notarized Deed), or
b) Fair Market Value (BIR’s Zonal Valuation or LGU Tax Declaration)Tip: Locate BIR’s latest Zonal Values at your Revenue District Office (RDO). If no zonal value exists for the barangay, the assessed value in the Tax Declaration is used.
Example
Lot in Camarines Sur (untitled, tax-declared) sold for ₱800,000 on 5 May 2025; Tax Declaration FMV = ₱950,000.
CGT = 6 % × ₱950,000 = ₱57,000
Penalties for late filing (after 30 days from notarization):
| Charge | Basis | Rate |
|---|---|---|
| Surcharge | CGT due | 25 % if voluntary; 50 % if fraudulent |
| Interest | CGT + surcharge | 12 % p.a. (compounded daily) |
| Compromise Penalty | per BIR Table | ₱1,000 – ₱50,000 |
5. Step-by-Step Compliance for Untitled Land
Due-Diligence
- Secure Tax Declaration in the seller’s name (or proof of long-term possession).
- Obtain DENR or CENRO certification of land classification.
- Check for adverse claims, land reform coverage, or public-land reservations.
Execute & Notarize Deed of Absolute Sale of Rights/Interests
- Use precise technical descriptions (Lot #, Survey #).
- Include declarations that property is untitled and possessed in concept of owner.
File CGT (BIR Form 1706) within 30 days
- Attach deed, Tax Declaration, DENR papers, IDs, notarized SPA if using a representative.
- Pay CGT at an AAB (Authorized Agent Bank) or RDO Cashier.
Pay Documentary Stamp Tax (DST)
- BIR Form 2000-OT, rate ₱15.00 for every ₱1,000 or fraction of GSP / FMV.
- Deadline: on or before the 5th day of the following month after notarization.
Secure eCAR (Electronic Certificate Authorizing Registration)
- Even without a Torrens title, the BIR still issues an eCAR “For Transfer of Possessory Rights”.
- The eCAR is essential for LGU transfer-tax payment.
Pay LGU Transfer Tax & Secure Tax-Clearance
- File within 60 days of execution under RA 7160.
- Rate: up to 1 % of GSP / FMV.
Annotate Tax Declaration in the buyer’s name at the Assessor’s Office.
- Present eCAR, paid BIR receipts, deed, IDs.
- Assessor cancels seller’s tax dec and issues a new one.
Optional: Judicial or Administrative Titling
Buyer may thereafter pursue:
- Administrative Free Patent (agricultural lands under RA 11573); or
- Original Land Registration under Property Registration Decree (PD 1529).
Titling does not trigger another CGT; registration cost and fees apply.
6. Common Pitfalls & How to Avoid Them
| Pitfall | Effect | Mitigation |
|---|---|---|
| Late CGT filing | 25 – 50 % surcharge + interest | Pre-book RDO appointment early; watch 30-day clock. |
| Seller’s name not on Tax Declaration | BIR may question ownership → CGT/Transfer-tax blocked | Require seller to update tax dec or provide succession documents (extrajudicial settlement). |
| Forgotten DST | eCAR withheld despite CGT being paid | File DST concurrently with CGT. |
| Unpaid real-property taxes | LGU will refuse tax-dec cancellation | Have seller secure RPT clearance as condition precedent in deed. |
| Property subject to agrarian-reform CLOA | Sale may be void within 10-year retention period | Verify DAR clearance; wait out restriction or obtain DAR approval. |
7. Exemptions & Special Cases
Principal Residence Exemption
- One sale every ten years; proceeds must be fully reinvested in new principal home within 18 months.
- File Notice of Availment (BIR Form 1904) within 30 days of sale.
Certified REIT Properties
- Transfers to Real-Estate Investment Trusts may be exempt if conditions under RA 9856 are met.
Tax-Free Exchanges under § 40(C)(2)
- Contribution to a corporation in exchange for shares (≥51 % control post-exchange) can be tax-deferred.
- BIR confirmatory ruling strongly advised.
Estate Settlements
- Sale by heirs of untitled land may first require payment of Estate Tax (6 %) on decedent’s estate before the CGT on the subsequent sale.
8. Pending Legislative Changes (as of mid-2025)
- Passive Income and Financial Intermediary Taxation Act (PIFITA) — still in the Senate; proposes to replace the flat 6 % CGT on real property with a capital-gains schedular rate (0 – 15 %) after adjustment for inflation.
- Real Property Valuation Reform Bill — aims for a Uniform Valuation Standard under the Bureau of Local Government Finance; would harmonize zonal and LGU values, affecting the CGT base.
Status: Both bills remain at committee level; the 6 % regime continues to apply.
9. Practical Checklist for Buyers & Sellers
☐ Verify seller’s possessory title (tax dec + 10-year open, notorious occupation). ☐ Conduct DENR & Assessor’s-Office inquiries to rule out conflicts. ☐ Draft deed with precise technical description; notarize. ☐ Pay CGT (BIR 1706) and DST (BIR 2000-OT) within statutory deadlines. ☐ Obtain eCAR; settle transfer tax; update tax declaration. ☐ Keep a CGT file (receipts, eCAR, RPT clearance) — mandatory for future titling or resale.
10. Key Take-Aways
- Untitled does not mean untaxable: the 6 % CGT applies so long as real property rights are transferred for value.
- Timelines are tight (30 days for CGT, 5 days/month for DST, 60 days for LGU tax). Missing one triggers hefty penalties.
- Documentary completeness is king — BIR and LGU will not process the transfer until every required paper (eCAR, DENR cert, RPT clearance) is present.
- Buyers should budget not only CGT but also DST (~1.5 %), LGU transfer tax (~1 %), notarization, due-diligence costs, and—if they later pursue titling—registration fees.
- Legislative reform may eventually reshape CGT, but as of 2025 the 6 % final tax remains firmly in force.
Disclaimer: This article provides general information and is not a substitute for formal legal advice. Always consult the BIR’s latest issuances and, where the sale presents complex factual issues (e.g., overlapping claims, DAR restrictions), engage a Philippine tax and land-registration specialist.