Capital Gains Tax (CGT) on Untitled Real Property in the Philippines
A comprehensive practitioner-level guide (updated to 21 June 2025)
Disclaimer – This article is for general information only and does not establish an attorney-client relationship. Tax rules evolve; always confirm current issuances with the Bureau of Internal Revenue (BIR) or qualified counsel before transacting.
1. What “Capital Gains Tax” Means in Philippine Law
| Point | Key Take-aways |
|---|---|
| Statutory basis | Sec. 24(D)(1) (individuals) and Sec. 27(D)(5) (corporations) of the National Internal Revenue Code (NIRC), as amended. |
| Nature | A final tax of six per cent (6 %) on the higher of (a) the gross selling price (GSP) stated in the deed or (b) the BIR-determined fair market value (FMV). |
| When imposed | On each sale, barter, exchange, or other disposition of a capital asset located in the Philippines. |
| Capital vs. ordinary asset | Real property not used in trade or business by the transferor during the year of sale is treated as a capital asset. (See RR 7-2003 and relevant jurisprudence.) |
| Finality | CGT is a final withholding tax—payment discharges further income-tax liability on the gain from the transaction. |
2. “Untitled” Real Property: Philippine Context
Definition. Land (and sometimes buildings) that lacks a Torrens Certificate of Title in the Registry of Deeds (RD). Common examples:
- parcels covered only by tax declarations or Spanish-period titulo;
- lands still in the process of titling under public-land acts or agrarian reform (e.g., CLOA, EP).
Legal Reality. Ownership can exist without Torrens title under Art. 433, Civil Code. Philippine courts have long recognized tax declarations, deeds of sale, and open-continuous-exclusive possession as indicia of ownership.
Practical consequences.
- RD will not register a conveyance, but BIR will still assess CGT;
- LGU Assessor and Treasurer treat tax-declared land as taxable for Real Property Tax (RPT), reinforcing its taxable status for CGT.
3. Does CGT Apply to Untitled Property? – Yes
- The NIRC does not require Torrens title; it only requires that the property be “real property located in the Philippines.”
- BIR Issuances. Several Revenue Regulations (RR 7-2003, RR 12-2018, RR 23-2023) and Revenue Memorandum Orders (RMO 15-2003, RMO 32-2024) expressly list a tax declaration as an acceptable substitute when no title exists.
- Jurisprudence. CIR v. Court of Appeals & Estate of Ben Fernandez (G.R. No. 108576, 2001) upheld CGT on an extrajudicial sale of unregistered land, emphasizing the statutory trigger is the act of transfer, not registration.
4. Step-by-Step Compliance Workflow (Untitled Property)
Prepare Core Documents
- Notarized Deed of Absolute Sale (DOAS), Deed of Exchange, etc.
- Current Tax Declaration (land and improvements).
- Latest Real Property Tax (RPT) clearance and Tax Clearance Certificate.
- Certified true copy of Survey Plan / Sketch Plan, if available.
- Proof of identity of transferor and transferee (TIN, IDs).
File BIR Form 1706 (Capital Gains Tax Return)
- Deadline: within 30 days after the date of notarization of the deed.
- Payment: 6 % of the higher of GSP vs. zonal value (or FMV in tax declaration when zonal value is absent).
File BIR Form 2000-OT (Documentary Stamp Tax)
- Rate = ₱15.00 for every ₱1,000 (or fractional part) of the higher value.
- Same 30-day deadline (Sec. 199, NIRC).
Submit Supporting Docket to BIR RDO having jurisdiction over the property.
- Deed + Tax Declaration + Receipt of CGT & DST payments + Sworn Declaration of No Title (template annexed to RMO 32-2024) + Barangay Certification that property is untitled but in seller’s possession.
- If inherited: Extra-Judicial Settlement + BIR CAR for Estate Tax or Estate Tax Amnesty Certificate (if availed under RA 11213, extended by RA 11956 to June 14 2025).
Wait for electronic Certificate Authorizing Registration (eCAR)
- Targets: 5–15 working days if complete.
- For untitled land, eCAR enables RDO to transmit the transaction to Assessor and Treasurer instead of RD.
Pay Local Transfer Tax (0.5 %–0.75 % of FMV/GSP, depending on LGU) within 60 days.
Update Tax Declaration to the buyer’s name at the Assessor’s Office.
5. Determining the Tax Base When There Is No Zonal Value
- Hierarchy of values under Sec. 6(E), NIRC and RR 7-2003: a. BIR Zonal Value (if published for the barangay/purok) b. FMV per latest Tax Declaration issued by the Assessor c. Assessment Schedule prepared by Provincial/City Appraisal Committee
- Disposition price manipulation check – If the declared GSP is unreasonably low, BIR may invoke Sec. 6(B) to assess based on best evidence obtainable (e.g., ocular inspection, recent comparable sales).
- Buildings & improvements – If untitled, BIR uses depreciated replacement cost from the Tax Declaration or Engineering appraisal. CGT still attaches because the law speaks of “real property,” which includes both land and structures under Art. 415(1), Civil Code.
6. Penalties for Late or Deficient Filing
| Infraction | Surcharge | Interest | Compromise | Criminal |
|---|---|---|---|---|
| Late filing/ payment | 25 % of tax or DST due | 12 % p.a. (or prevailing legal rate) from statutory due date until paid | ₱1,000–50,000 | Sec. 255, NIRC – imprisonment 1–10 yrs |
| Misdeclaration (under-valuation) | 50 % fraud penalty + 12 % interest | -- | plus differential tax | Possible tax evasion |
7. Special Scenarios & Nuances
| Scenario | CGT Exposure? | Key Notes |
|---|---|---|
| Sale of agrarian reform land (CLOA/EP) within 10-year prohibition | Void sale → BIR will not issue eCAR; transaction usually disallowed, but if still pushed, BIR may provisionally assess CGT to protect revenue. | |
| Expropriation by government | CGT is exempt under Sec. 24(D)(1) last paragraph if seller is an individual and property is capital asset. For corporations, CGT applies unless special law exempts. | |
| Dacion en pago (payment-in-kind) | Treated as sale; CGT due on FMV. | |
| Exchange solely for shares under Sec. 40(C)(2) | May be tax-free if statutory conditions (control test) are met, but property must be titled to be transferred to the corporation; untitled land usually disqualifies. | |
| Foreclosure sale (bank as buyer) | Subject to CGT unless seller is habitually engaged in real-estate development (ordinary asset). | |
| Partition or reconveyance among heirs | No CGT if purely in conformity with inheritance shares; but unequal partition triggers CGT on excess portion deemed sale. |
8. Distinguishing CGT from Other Transfer Taxes
| Tax | Rates (2025) | Trigger | Applies to Untitled Property? |
|---|---|---|---|
| Capital Gains Tax | 6 % | Sale/exchange of capital real property by individuals/corps | Yes |
| Documentary Stamp Tax | ₱15 per ₱1,000 | Sale/exchange of real property | Yes |
| Creditable Withholding Tax (CWT) | 1.5 %–6 % | Sale of ordinary asset by business seller | Yes |
| Donor’s Tax | 6 % of net gifts | Gratuitous transfer | Yes |
| Estate Tax | 6 % of net estate | Transmission upon death | Yes |
| Local Transfer Tax | ≤ 0.75 % (LGU) | Registration/transfer | Yes |
9. Relevant BIR Issuances & Supreme Court Decisions (Select Digest)
| Reference | Date | Core Holding / Purpose | |-----------|------|----------------| | RR 7-2003 | 11 Apr 2003 | Unified documentary requirements; recognizes tax declaration for untitled land. | | RMO 15-2003 | 16 Apr 2003 | eCAR processing guidelines. | | RR 12-2018 | 08 Aug 2018 | Mandatory use of new BIR Forms 1706 & 2000-OT. | | RMC 55-2015 | 11 Aug 2015 | Clarifies FMV determination when no zonal value. | | RMO 32-2024 | 17 Oct 2024 | Introduces Sworn Declaration of No Title and streamlines eCAR release for untitled property. | | CIR v. CA & Estate of Ben Fernandez, G.R. No. 108576 | 16 Jan 2001 | CGT collectible on unregistered land; transfer registration not determinant. | | Spouses Macasaet v. Macasaet, G.R. No. 156867 | 14 Jun 2004 | Tax declarations are evidence of ownership but not conclusive; still taxable. | | Lorenzo v. Posadas, 64 Phil 353 (1937) | Classic early case recognizing tax declarations for assessment. |
10. Practical Tips & Common Pitfalls
- Secure a certified tax declaration in the seller’s name before executing the deed. BIR and LGU will not process a transfer if the declarant is a different person.
- Double-check zonal values. Updates can raise bases retroactively if deed is undated or void.
- Pay within 30 days—even one-day delay can mean thousands in penalties.
- Keep ocular-inspection photos to rebut arbitrary FMV uplifts.
- Avoid “under-declaration”—BIR now cross-matches with electronic Assessor data and Landbank escrow records.
- For inherited untitled property, settle estate tax first; otherwise CGT docket will be rejected.
- Plan titling concurrently. While not legally required for CGT, securing Torrens title post-sale enhances value and future resale ease.
11. Pending & Recent Reforms (As of June 2025)
- House Bill 7406 / Senate Bill 2351 (Real Property Valuation and Assessment Reform, “RPVARA”) proposes shifting to a single schedule of market values and eventual offsetting of CGT against ordinary income tax for individuals. Still at Bicameral stage (May 2025).
- Digital eCAR system pilot launched 2024 in NCR/Luzon RDOs—full national rollout projected Q4 2025.
- Extended Estate Tax Amnesty under RA 11956 (signed Aug 2023) now covers estates whose decedents died on or before 31 May 2022—indirectly important because heirs often dispose of untitled property after using the amnesty.
12. Summary Checklist
- Identify ownership evidence – tax declaration + barangay confirmation.
- Verify asset classification – capital vs. ordinary.
- Compute 6 % CGT on higher of GSP vs. FMV.
- File BIR Forms 1706 & 2000-OT and pay within 30 days.
- Submit complete docket (including Sworn Declaration of No Title).
- Secure eCAR and pay LGU transfer tax.
- Update tax declaration to buyer’s name.
- Retain records for at least 10 years (Sec. 235, NIRC).
13. Concluding Remarks
Capital Gains Tax applies with equal force to untitled real property; the absence of a Torrens title modifies procedure, not taxability. The seller’s diligence in assembling substitute documents—primarily the tax declaration—makes or breaks BIR approval. Because untitled land often surfaces in estates, agrarian settings, or ancestral domains, practitioners must coordinate estate, agrarian, and land-registration rules alongside tax compliance.
When in doubt, seek a BIR ruling before closing: under RMO 9-2020, advance tax rulings on capital-asset classifications are processed within 90 days and can save years of disputes.
Prepared by: [Your Name], Philippine tax & corporate counsel