Computation Differences Between Donor’s Tax and Estate Tax in the Philippines
(All statutory citations refer to the National Internal Revenue Code (NIRC) of 1997, as last amended by the Tax Reform for Acceleration and Inclusion — “TRAIN” Law, RA 10963, effective 1 January 2018. No subsequent law up to 30 July 2025 has altered the basic donor’s‑ or estate‑tax rules discussed below.)
1. Conceptual Distinction
| Donor’s (Gift) Tax | Estate Tax | |
|---|---|---|
| Nature | Tax on inter‑vivos gratuitous transfers. | Tax on mortis causa transfers taking effect at death. |
| Taxable Person | Donor (giver) is personally liable. | Estate of the decedent (handled by executor/administrator or heirs). |
| Governing Sections | §§ 98 – 104 NIRC | §§ 84 – 97 NIRC |
| Return Form & Deadline | BIR Form 1800; within 30 days from each gift. | BIR Form 1801; within 1 year from death (extendible for “hardship” up to 5 years). |
2. Tax Base: What Gets Counted?
2.1 Gross Gifts (Donor’s Tax)
All property, real or personal, tangible or intangible, situated in or outside the Philippines as of the date of donation, valued at fair market value (FMV). Adjustments/exclusions:
- Return of property to spouse (if conjugal/CPR) — treated as partition, not gift.
- Gifts to the national government, political subdivisions, or accredited donee institutions (§101(A)(1) & (2)) — exempt.
- Annual exemption: first ₱250,000 of total net gifts per calendar year (§99(A)(2)).
2.2 Gross Estate (Estate Tax)
All property wherever situated existing at the moment of death, including certain transfers in contemplation of death or revocable transfers (§85). Typical inclusions: real estate, bank deposits, shares, retirement benefits not yet received, life‑insurance proceeds payable to the estate, plus accrued income up to death.
Mandatory deductions/exclusions to arrive at “net estate”:
| Deduction | Amount / Rule |
|---|---|
| Standard deduction | Flat ₱5 million (§86(A)(5)). Replaces former itemized funeral/medical deductions. |
| Family‑home deduction | Lower of FMV or ₱10 million (§86(A)(4)). |
| Share of surviving spouse | ½ of conjugal/communal property automatically excluded (§86(A)(1)). |
| Claims against the estate | Valid enforceable debts & unpaid expenses. |
| Losses incurred during settlement | If not already claimed as business loss. |
| Transfers for public use | Similar to donor’s tax. |
| Reciprocity deduction for intangible personal property of non‑resident alien decedents (§104) | Allowed if the foreign country offers a similar exemption to Filipinos. |
3. Tax Rates (Post‑TRAIN, still in force 2025)
| Rate | Applied to | |
|---|---|---|
| Donor’s Tax | 6 % | Net gifts in excess of ₱250 000 annual threshold. |
| Estate Tax | 6 % | Net estate (after deductions). |
Before 2018, both taxes used progressive schedules topping at 15 % (donor’s) and 20 % (estate). The TRAIN Law unified and flattened them for simplicity.
4. Step‑by‑Step Computation Templates
4.1 Donor’s Tax
Determine FMV of each property on donation date.
Sum all donations for the calendar year = Gross gifts.
Less:
- Exempt gifts (government, accredited NGOs, etc.).
- If conjugal: property returned to spouse.
Net gifts.
Less ₱250,000 annual exemption → Taxable net gifts.
Tax Due = 6 % × Taxable net gifts.
File & pay within 30 days using BIR 1800.
Illustration: Juan gives ₱2 000 000 cash to his brother on 1 March and a ₱1 000 000 lot (FMV) to a friend on 20 May, same year. No exempt donations.
- Gross gifts: 2 000 000 + 1 000 000 = ₱3 000 000
- Less annual exemption: ₱250 000
- Taxable net gifts: ₱2 750 000
- Donor’s tax: 6 % × 2 750 000 = ₱165 000 (two returns may be filed or one consolidated within 30 days of each gift).
4.2 Estate Tax
- Inventory & value all properties at FMV on date of death → Gross estate.
- Compute surviving spouse’s share (if conjugal) and exclude it.
- Itemize deductions (standard, family home, debts, public use, losses, reciprocity, etc.) → Total deductions.
- Net estate = Gross estate − Deductions.
- Estate tax = 6 % × Net estate.
- File & pay BIR 1801 within one year. Estate tax amnesty (RA 11213) deadlines lapsed in 2023; standard rules now apply.
Illustration: • Gross estate FMV: ₱40 000 000 (family home ₱9 000 000 included). • Conjugal property: assume 100 % conjugal → exclude 50 % = ₱20 000 000. • Standard deduction: ₱5 000 000. • Family‑home deduction: full ₱9 000 000 (below ₱10 M cap). • Valid debts: ₱3 000 000.
Net estate = 40 000 000 − 20 000 000 − 5 000 000 − 9 000 000 − 3 000 000 = ₱3 000 000. Estate tax = 6 % × 3 000 000 = ₱180 000.
5. Key Computational Differences at a Glance
| Aspect | Donor’s Tax | Estate Tax |
|---|---|---|
| Timing of valuation | Date of each gift. | Date of death. |
| Annual / per‑event exemption | ₱250 000 total per calendar year. | None (but ₱5 M standard deduction + exclusions). |
| Large blanket deductions | None aside from exempt gifts. | ▸ ₱5 M standard deduction ▸ Up to ₱10 M family home ▸ Debts/losses, etc. |
| Recipient’s share deduction | N/A. | Automatic exclusion of surviving spouse’s share. |
| Aggregation rule | Gifts in same calendar year aggregated; fresh ₱250 K exemption each year. | All assets aggregated once; no yearly resetting. |
| Taxpayer & personal liability | Donor personally liable; donee secondary if donor fails (§99(C)). | Estate primarily; heirs can be held liable up to value received (§91). |
| Typical supporting docs | Deed of donation, proof of FMV, Certificate of Donation for NGO gifts. | Death certificate, certified list of assets, proofs of debts, appraisal reports, Extrajudicial Settlement (if any). |
6. Special Situations
6.1 Non‑Resident Citizens & Aliens
- Resident aliens: taxed on worldwide gifts & estate.
- Non‑resident aliens: taxed only on properties situated in the Philippines, plus reciprocity for intangibles (§104).
- Valuation: intangible situs follows place of issuance/business/domicile of issuer rules.
6.2 Successive Transfers
Property donated within 2 years prior to donor’s death may be hit twice (“douple taxation”). Relief: Vanishing deduction (§86(B)) from the estate tax; no equivalent in donor’s tax.
6.3 Conditional & Incomplete Gifts
If the donor retains control (e.g., revocable trusts), no donor’s tax yet; but the property may enter the gross estate.
6.4 Installment Payments & Extensions
Estate tax may be paid in installments within 2 years without interest (§92); beyond that needs BIR approval. Donor’s tax has no installment privilege.
7. Compliance, Penalties, Prescriptive Periods
| Violation | Surcharge | Interest | Criminal |
|---|---|---|---|
| Late filing/payment | 25 % of tax; 50 % if fraudulent (§248). | 12 % p.a. interest (§249). | Fine + imprisonment (§255). |
| Failure to submit required lists (e.g., notice of death) | ₱1 000 per offense, max ₱25 000 (§266). | — | — |
Assessment must be issued within 3 years from filing; 10 years if fraudulent or a false return.
8. Practical Tips & Common Pitfalls
Plan gifts over multiple calendar years to maximize the ₱250 K annual exemption.
Consolidate estate assets early; delays can trigger contact penalties from local transfer taxes and complicate clearance.
Document FMV using recent zonal values or appraisal to avoid disputes.
File even “no‑tax‑due” returns (e.g., small estates) to release titles and bank deposits.
Remember local taxes:
- Real Property Transfer Tax (0.5 % – 1 %) on donations.
- Estate settlement may trigger local transfer tax before titles can be re‑issued.
Split donations between spouses on conjugal property to halve the gift (each spouse is a separate donor).
Review life‑insurance designations; proceeds payable to a revocable beneficiary enter the gross estate.
Heir advance payments (e.g., paying bank debts) must be documented so they can be deducted as “claims against estate.”
9. Summary
While both donor’s and estate taxes now share a simple flat 6 % rate, they diverge sharply in computation mechanics:
- Donor’s tax revolves around per‑gift aggregation and a modest ₱250 K annual exemption, with few deductions.
- Estate tax demands a one‑time net‑estate calculation, backed by substantial deductions (₱5 M standard + ₱10 M family home + debts) and automatic exclusion of the surviving spouse’s share.
Understanding these structural differences allows taxpayers to sequence lifetime gifts and post‑death transfers intelligently, minimizing overall tax friction within the bounds of Philippine law.
Disclaimer: This article is for educational purposes only and is not legal advice. For transactions or estate planning, consult a Philippine tax professional or legal counsel.