Computing Estate Taxes on Inherited Land in the Philippines

I. Overview

When land is inherited in the Philippines, the transfer is subject to estate tax, a tax on the right of a deceased person (the decedent) to transmit property to heirs. For decedents who died on or after January 1, 2018, the estate tax is a flat six percent (6%) on the net estate. “Net estate” means the gross estate (everything the decedent owned at death that is subject to Philippine estate taxation) minus allowable deductions and the surviving spouse’s share (if applicable). The result is paid by the estate, not by individual heirs.

This article focuses on how to compute estate tax when the estate includes land (urban or rural), and walks through valuation rules, allowable deductions, deadlines, payment options, documentation, and worked examples—all in the Philippine legal context.

II. Legal Framework (Philippine Context)

National Internal Revenue Code (NIRC), as amended by the TRAIN Law (RA 10963). Key changes effective 2018 include the 6% flat rate, a simplified set of deductions (notably a large standard deduction and a capped family home deduction), and more flexible filing/payment terms in certain cases.
Revenue Regulations and BIR Rulings. Implement the NIRC provisions, prescribe forms (e.g., BIR Form 1801), and set documentation standards (e.g., proof requirements for debts, claims, and valuation).
Civil Code and Family Code. Determine property regimes between spouses (absolute community, conjugal partnership, or separation of property), which is crucial for identifying the portion of property belonging to the decedent versus the surviving spouse’s share (which is not taxed).
Local Government Code and Assessor Rules. Provide schedules of values for real property through tax declarations maintained by city/municipal assessors.

III. What Belongs in the Gross Estate (Land-Focused)

Include all property interests the decedent owned at the moment of death:

Land and improvements in the Philippines (house/structures, permanent improvements).
Land held under co-ownership or under a marital property regime (only the decedent’s share).
Accretions or appurtenant rights (easements, rights of way, etc., if they have separate value).
Real property located abroad (if the decedent was a Philippine citizen or resident; nonresident aliens are taxed only on Philippine-situs property).

Important: The valuation date is the date of death. Later increases or decreases in market value do not affect the estate tax computation.

IV. Valuation of Land for Estate Tax

For real property in the Philippines, the fair market value (FMV) is the higher of:

The BIR Zonal Value (if one exists for the property’s classification and location) as of the date of death; or
The FMV per the latest tax declaration (the local assessor’s schedule of market values) as of the date of death.

Notes:

Use zonal value if available; otherwise, rely on the tax declaration’s FMV. Do not use assessed value (that’s for real property tax computations).
Include improvements at their replacement cost new less depreciation, or as reflected in the tax declaration, unless better evidence is available.
If the land is encumbered by a mortgage, include the full FMV in the gross estate; the unpaid mortgage can be claimed later as a deduction if documentary requirements are met.

V. Determining the Decedent’s Share (Property Regimes & Co-ownership)

Absolute Community (default for marriages after the Family Code, absent a marriage settlement): Generally, property acquired during the marriage belongs to the community. Compute the estate on the decedent’s one-half (½) share of community property, after excluding the surviving spouse’s one-half (½).
Conjugal Partnership of Gains (older marriages or by agreement): Conjugal property consists mainly of gains and acquisitions during marriage. Again, split 50–50; only the decedent’s share enters the estate.
Separation of Property (by valid marriage settlement or judicial decree): Only the decedent’s exclusive property forms part of the estate (no spousal splitting needed).
Co-ownership outside marriage (e.g., siblings): Include only the decedent’s pro-rata share.

Practical step: Before any deductions, identify which portion of each parcel of land actually belongs to the decedent.

VI. Allowable Deductions (Post-2018 Estates)

After arriving at the gross estate (limited to the decedent’s share), deduct the following to arrive at the net estate:

Standard Deduction: ₱5,000,000 (for citizens and residents). This is automatic; no need to prove actual expenses.
Family Home Deduction: Up to ₱10,000,000 of the family home’s FMV (whichever is lower: FMV or cap). Requirements typically include proof that it was the dwelling of the decedent and family at the time of death (e.g., utility bills, IDs, barangay certification). If the family home’s FMV is less than ₱10M, deduct the lower actual FMV.
Claims Against the Estate (Unpaid Debts): Deduct valid, existing, enforceable debts of the decedent incurred before death, if properly substantiated:
- Notarized debt instrument or equivalent contemporaneous evidence.
- Creditor certification of outstanding balance at death.
- Proof of how loan proceeds were used (especially for related-party loans).
- For mortgages, the unpaid balance is deductible if the property is included at full FMV in the gross estate.
Claims of the Estate (e.g., taxes, losses): Certain losses from casualties occurring within six months after death and not compensated by insurance may be deductible (subject to timing and documentation). Ordinary and necessary administration expenses (e.g., estate lawyer’s fees, court/filing fees, publication, executor’s commission, appraisal fees) are deductible if necessary to settle the estate and paid or incurred within the settlement period.
Transfers for Public Use: Bequests or legacies to the government or its political subdivisions for exclusive public purposes are deductible.
Property Previously Taxed (Vanishing Deduction): If the decedent acquired property by donation or inheritance within the five (5) years preceding death and donor’s/estate tax was paid on that prior transfer, a vanishing deduction applies on the property’s net value (after any mortgage):
- Within 1 year: 100%
- >1 to 2 years: 80%
- >2 to 3 years: 60%
- >3 to 4 years: 40%
- >4 to 5 years: 20%
Surviving Spouse’s Share: Always deduct the surviving spouse’s share of community or conjugal property before applying the 6% rate. (Mechanically, practitioners either remove the spouse’s share when building the gross estate or show it as a separate deduction—either path is acceptable if the net estate is correct.)

Special rule for Nonresident Aliens (NRA):

Net estate includes only Philippine-situs property.
Deductions (other than the surviving spouse’s share) are generally proportional to the ratio of Philippine gross estate to worldwide gross estate.
A smaller standard deduction (often ₱500,000) applies to NRAs. (Confirm the current figure in practice and rules applicable at death.)

Removed by TRAIN: The old medical expense deduction and funeral expense formula are no longer applicable to deaths on or after January 1, 2018.

VII. The Tax Itself

Estate Tax = 6% × Net Estate (for deaths on or after January 1, 2018).

If the decedent died before 2018, the graduated rates (up to 20%) apply under the old law, along with the old set of deductions. Compute under the rules in force on the date of death.

VIII. Filing, Payment, Extensions, and Penalties

Return & Deadline: File BIR Form 1801 (Estate Tax Return) within one (1) year from the date of death. (Earlier deaths may have had a 6-month deadline.)
Installments / Extension to Pay: If payment on the due date would cause undue hardship, the BIR may grant extension(s) to pay, typically:
- Up to 2 years for extrajudicial settlements; and
- Up to 5 years for judicial settlements (probate). Interest accrues on unpaid amounts.
Interest and Surcharges (Late Filing/Payment):
- Interest: At a rate tied to double the legal interest rate (commonly 12% per annum, but subject to change by monetary authorities).
- Surcharge: 25% for failure to file/pay on time; 50% in cases of willful neglect or fraud.
- Compromise penalties may also be assessed per BIR schedules.
Notice of Death: Under modern rules, a separate “notice of death” is no longer required for deaths covered by TRAIN; focus on filing the return timely with complete documents.
Estate Tax Amnesty (Historical): Congress enacted an Estate Tax Amnesty regime with deadlines that were extended by subsequent laws through June 14, 2025. Consult current law to see whether any further extensions or new programs exist for your fact pattern.

IX. Documentary Requirements (Land-Centric)

Expect the BIR to require, among others:

BIR Form 1801 (properly accomplished).
Death Certificate.
TIN of the Estate and of heirs.
Proof of property regime: Marriage certificate, marriage settlement (if any), judicial decrees affecting property relations.
Titles/Tax Declarations for land and improvements (latest, as of death).
BIR Certificate of Zonal Value (or printout/verification) as of date of death.
Location plan / lot plan and improvement details if needed for valuation.
Documents for deductions:
- Standard deduction: no substantiation beyond the fact of death.
- Family home: proof of actual use as family dwelling at death.
- Debts/mortgages: notarized loan documents, statements of account as of death, proof of loan utilization, payments after death, and, for related parties, proof of capacity to lend.
- Administration expenses: official receipts, fee agreements, court orders (if applicable).
- Vanishing deduction: prior donor’s/estate tax payment proof and dates.
- Transfers for public use: deed/acceptance by government entity.
Extrajudicial settlement (if no will and heirs are of legal capacity) or court orders (if judicial settlement).
Affidavits (e.g., list of heirs, non-availability of documents).
Proof of payment of estate tax and related fees to secure the electronic Certificate Authorizing Registration (eCAR).

X. Transferring Title After Paying Estate Tax

Secure eCAR from the BIR for each property covered.
Present eCAR, owner’s duplicate TCT/CTO/CLOA (or original title where appropriate), and supporting documents to the Registry of Deeds to issue new titles in the name of the heirs (or buyer, if simultaneously sold via extrajudicial settlement with sale).
Update the Assessor’s Office (new tax declarations) and the Treasurer’s Office (real property tax records).
Pay registration fees and transfer fees as required. Documentary stamp tax does not apply to transfer by succession; it applies to sales and certain other instruments.

XI. Step-by-Step Computation for Land

Step 1 — Identify the decedent’s share. Classify each parcel: exclusive, community/conjugal (then take the decedent’s ½), or co-owned (take the decedent’s %).

Step 2 — Determine FMV of each parcel at death. Use the higher of BIR zonal value or assessor’s FMV in the tax declaration. Add value of improvements.

Step 3 — Build the Gross Estate (land and any other properties).

Step 4 — Deduct the Surviving Spouse’s Share (if community/conjugal property is still combined in Step 3).

Step 5 — Apply Allowable Deductions.

Standard Deduction (₱5,000,000 for citizens/residents).
Family Home up to ₱10,000,000.
Valid debts/mortgages (with documents).
Administration expenses (reasonable and necessary).
Vanishing deduction (if applicable).
Transfers for public use.

Step 6 — Compute Net Estate and Tax.

Net Estate = Gross Estate − Deductions.
Estate Tax = 6% × Net Estate.

Step 7 — File, pay, obtain eCAR, and transfer title.

XII. Worked Examples

Example A: Simple estate with one parcel of land (exclusive property)

Facts:
- Decedent (single) owned a residential lot in Quezon City.
- Date of death: 2024.
- Zonal value at death: ₱14,000,000.
- Tax declaration FMV at death: ₱12,500,000.
- No debts; no family home claim (decedent rented elsewhere).
Computation:
1. Gross Estate (land) = ₱14,000,000 (higher of zonal vs TD).
2. Deductions:
  - Standard Deduction = ₱5,000,000.
  - Others = ₱0.
3. Net Estate = ₱14,000,000 − ₱5,000,000 = ₱9,000,000.
4. Estate Tax (6%) = ₱540,000.

Example B: Family home, community property, with mortgage

Facts:
- Married decedent (absolute community).
- Family home in Cebu City:
  - Zonal value: ₱18,000,000; TD FMV: ₱16,500,000 ⇒ use ₱18,000,000.
  - Outstanding mortgage at death: ₱2,000,000.
- No other properties.
- Date of death: 2024.
Ownership split: The house and lot is community property → split 50–50.
- Decedent’s share in gross estate: ₱9,000,000 (half of ₱18,000,000).
- Mortgage applies to the whole property; to be safe, allocate ₱1,000,000 as the decedent’s share of the unpaid mortgage.
Computation:
1. Gross Estate (decedent’s share) = ₱9,000,000.
2. Deductions:
  - Standard Deduction = ₱5,000,000.
  - Family Home = lesser of ₱10,000,000 or FMV of family home attributable to the decedent. If you’ve already limited the gross estate to the decedent’s ½ share, a common approach is to apply the cap against that share; here, decedent’s half of FMV is ₱9,000,000 → deduct ₱9,000,000 (within the ₱10M cap).
  - Unpaid Mortgage (decedent’s share) = ₱1,000,000, provided documentation requirements are met.
3. Net Estate = ₱9,000,000 − ₱5,000,000 − ₱9,000,000 − ₱1,000,000 = negative. In practice, the net estate cannot go below zero; thus ₱0.
4. Estate Tax (6%) = ₀.

Tip: Whether to apply the family home deduction to the decedent’s share or to the whole FMV depends on how you structured Step 1 (some practitioners keep the entire property in gross estate and deduct the spouse’s ½ later). The end result should be the same if consistently applied: only the decedent’s taxable portion benefits from the deduction, and the net cannot drop below zero.

Example C: Property previously taxed (vanishing deduction)

Facts:
- Decedent inherited a farm in 2022 and paid estate/donor’s tax on that transfer.
- Decedent died in 2024, still owning the farm.
- Zonal value at death: ₱12,000,000 (no liens).
- No other assets/deductions.
Computation (outline):
1. Gross Estate = ₱12,000,000.
2. Deductions:
  - Standard Deduction = ₱5,000,000.
  - Vanishing Deduction: Transfer occurred >1 to 2 years before death → 80% of the property’s net value is deductible. Net value (no mortgage) = ₱12,000,000 → ₱9,600,000 deduction.
3. Net Estate = ₱12,000,000 − ₱5,000,000 − ₱9,600,000 = negative → treat as ₱0.
4. Estate Tax = ₀.

XIII. Special Situations

Nonresident Alien Decedent Owning Philippine Land
- Taxed only on Philippine-situs assets.
- Deductions (other than surviving spouse’s share) are pro-rated based on the ratio: Philippine gross estate / worldwide gross estate.
- A reduced standard deduction (commonly ₱500,000) generally applies.
- No family home deduction unless requirements are clearly met within Philippine law and practice.
Usufructs, Life Estates, and Naked Ownership
- If the decedent had a usufruct or lifetime right, that interest can have value includible in the gross estate, often measured actuarially.
Agricultural Lands with Tenurial Arrangements
- Existing tenancy or agrarian reform rights may depress FMV; the assessor’s schedule and BIR zonal values may already reflect such constraints.
Contested Titles or Pending Litigation
- Include the property at FMV, but you may claim appropriate administration expenses and potentially losses if value is compromised by final judgments; seek legal counsel.

XIV. Practical Compliance Roadmap

Open the estate: Appoint an executor/administrator (if will) or agree on a representative (if extrajudicial). Secure a TIN for the Estate.
Inventory assets & debts as of date of death; segregate spouse’s share.
Obtain valuation: zonal value certification/printout and tax declaration FMV.
Compile deductions with complete documentation.
Prepare BIR Form 1801, pay the tax (or apply for extension/installments), and submit supporting documents.
Secure eCAR, then transfer titles at the Registry of Deeds, update Assessor and Treasurer records.
Keep records: Receipts, certifications, and all attachments—BIR may audit.

XV. Common Pitfalls and How to Avoid Them

Using assessed value instead of FMV per tax declaration or zonal value.
Ignoring the spouse’s share in community/conjugal property.
Insufficient loan documentation (no notarized debt instrument; no proof of use of proceeds; related-party loans without proof of capacity).
Claiming family home without proof it was the actual dwelling at death.
Missing the one-year filing deadline and incurring surcharges and interest.
Overlooking vanishing deduction for recently inherited/donated property.
Not matching valuations to the exact date of death.
Assuming estate tax amnesties are always available—verify current law and deadlines.

XVI. Quick Checklist (Land-Focused)

Date of death (sets valuation date and filing deadline).
Marital regime and spouse’s share clarified.
Titles and tax declarations (latest as of death).
BIR zonal value confirmation (as of death).
Family home proof (if claimed).
Notarized debt instruments, creditor certifications, proof of utilization.
Receipts/engagement letters for administration expenses.
Prior donor’s/estate tax receipts (for vanishing deduction).
Completed BIR Form 1801 and payment proof.
eCAR and title transfer steps lined up.

XVII. Final Notes

Always compute under the rules in force on the date of death.
For deaths on/after January 1, 2018, the 6% on net estate regime applies, with ₱5M standard deduction and family home deduction up to ₱10M (subject to proof and caps).
Documentation drives deductibility; prepare it thoroughly to protect the estate’s position.
Where facts are complex (multiple titles, cross-border assets, agrarian issues, liens), consult a Philippine tax lawyer or a seasoned estate practitioner to validate positions and streamline processing with the BIR, Registry of Deeds, and local assessor.