For general information only; not legal advice.

Donating property to children is one of the most common estate-planning moves in the Philippines. Legally, it is typically a donation inter vivos (a voluntary transfer that takes effect during the donor’s lifetime), which triggers donor’s tax and related transfer requirements—especially if the asset is real property. Since the tax reform changes that took effect beginning 2018, donor’s tax has been simplified into a generally flat-rate system with a standard annual exemption, regardless of whether the donee is a child, a spouse, or a stranger.

This article covers the tax rate, the exemption structure, the key statutory exclusions, valuation rules, filing/payment mechanics, and practical issues that frequently arise when parents donate property to children.

1) Legal Framework and Key Concepts

A. What is donor’s tax?

Donor’s tax is a transfer tax imposed on the gratuitous transfer of property made during the donor’s lifetime. It applies when a person gives property without receiving full and adequate consideration (or gives for less than full value).

B. Donation inter vivos vs. donation mortis causa

This distinction is crucial:

Donation inter vivos: effective during the donor’s lifetime; usually donor’s tax applies.
Donation mortis causa: intended to take effect upon death (often testamentary in nature); generally treated as part of the estate and covered by estate tax, not donor’s tax.

A deed titled “Deed of Donation” can still be treated as mortis causa if its terms show it’s essentially a will substitute (e.g., transfer is effective only upon death and remains revocable like a will).

C. Who is taxed?

The donor is the taxpayer (not the child). The place of residence (resident vs. non-resident) matters for the scope of taxable property, but in typical parent-to-child domestic donations, the Philippines will tax the transfer of property situated in the Philippines.

2) Donor’s Tax Rate (Post-reform)

The general rate

Donor’s tax is generally a flat 6% of net gifts in excess of the annual exemption.

Key point: The 6% rate applies regardless of relationship. Donations to children are taxed the same way as donations to non-relatives (after applying exemptions/exclusions).

3) The ₱250,000 Annual Exemption

A. What it is

There is generally a ₱250,000 exemption per calendar year for total net gifts made by a donor.

It is annual (resets every January 1).
It applies to the donor’s aggregate donations for the year (after removing exempt gifts).
It is not “₱250,000 per child”; it is typically per donor per year, regardless of how many children receive gifts.

B. Planning implication for parents

If both parents donate (e.g., property owned by the spouses), donor’s tax consequences may differ depending on ownership:

If the property is owned by both spouses (community/conjugal), each spouse is generally treated as a separate donor to the extent of their share—often allowing use of each spouse’s ₱250,000 annual exemption (subject to proper documentation and filing practices).

4) What Gifts Are Exempt or Excluded from Donor’s Tax

The law recognizes certain transfers that are fully exempt (not merely deducted). Common categories include:

A. Donations to Government

Gifts/donations made to:

the National Government, or
any political subdivision (e.g., province, city, municipality, barangay),
for public purposes (subject to legal conditions in the tax code and implementing rules).

B. Donations to Accredited/Qualified Charities and Similar Institutions

Donations to qualified non-stock, non-profit institutions organized and operated exclusively for certain purposes (commonly religious, charitable, scientific, educational, cultural, social welfare), generally qualify—often subject to:

accreditation/qualification requirements,
limitations on use of funds/assets,
and documentation.

C. Certain Transfers Not Treated as Taxable Gifts (Common Situations)

Depending on facts and documentation, the following frequently arise as non-taxable gifts or not donor’s tax events:

Transfers for full and adequate consideration If the child pays fair value, it’s not a donation. (It may be a sale and subject to other taxes instead.)
General renunciation of inheritance (estate context) A general renunciation (not in favor of a specific person) is typically treated as not a taxable donation. A specific renunciation in favor of identified heirs may be treated as a taxable gift by the renouncer.
Partition of co-ownership / settlement scenarios Pure partition that merely segregates each owner’s proportionate share is not a donation; but if one party receives more than their share without adequate consideration, the excess can be treated as a gift.

Important: Exemptions are highly documentation-driven. If the intended exemption is charitable/governmental, ensure the donee institution’s qualification and the deed’s conditions align with tax rules.

5) What Property Donations to Children Commonly Trigger (Besides Donor’s Tax)

A. Documentary Stamp Tax (DST)

Certain documents and transfers—especially involving real property—commonly trigger DST, separate from donor’s tax. Donation may avoid capital gains tax (as it’s not a sale), but it often still requires DST and registration-related costs.

B. Local transfer taxes and fees

Local government units may impose transfer tax and require clearances (exact requirements vary by city/municipality). Registry of Deeds registration fees and notarial fees also apply.

C. Other tax classification risks

A donation disguised as a sale (or vice versa) can be reclassified based on substance. A sale for a token price can be treated as a part-donation, taxing the difference between fair market value and consideration.

6) Valuation Rules (How the Tax Base Is Determined)

Donor’s tax is computed on the fair market value (FMV) of the property donated, generally determined under tax rules specific to the property type.

A. Real property (land/building/condo)

FMV is commonly determined by whichever is higher:

the zonal value (BIR), or
the fair market value per tax declaration (assessor’s value), as used for tax purposes.

This “higher-of” rule is a major driver of donor’s tax exposure. Even if the property was acquired cheaply decades ago, donor’s tax is based on current tax FMV measures, not the historical cost.

B. Shares of stock

Valuation depends on whether the shares are listed and traded or not:

Listed/traded shares: typically valued using market-based measures (per prescribed rules).
Unlisted shares: often based on book value derived from financial statements, subject to prescribed adjustments and timing rules.

C. Personal property (vehicles, jewelry, other assets)

FMV is generally based on the property’s fair value at the time of donation, supported by appropriate evidence (e.g., appraisal, schedules, or recognized valuation references where applicable).

D. Partial interests and reserved rights (usufruct / naked title)

Donations can be structured so a parent donates the naked title while reserving usufruct (right to use/enjoy fruits) during lifetime. The taxable base is the FMV of the interest transferred, determined using prescribed valuation methods for interests and life-based factors (where applicable), and must be properly reflected in the deed and filings.

7) Computing Donor’s Tax: General Method (With Examples)

A. General computation flow

Determine gross gifts for the calendar year (FMV of all donated property).
Remove exempt gifts (e.g., qualified charitable/government donations).
The remainder is net gifts.
Subtract the ₱250,000 annual exemption.
Apply 6% to the taxable amount.

B. Example 1: Donation of a lot to one child

FMV (higher of zonal value or assessor’s value): ₱3,000,000
Exempt gifts: ₱0
Net gifts: ₱3,000,000
Less annual exemption: ₱250,000
Taxable net gifts: ₱2,750,000
Donor’s tax (6%): ₱165,000

C. Example 2: Two donations in the same year to two children

Donation #1 FMV: ₱600,000
Donation #2 FMV: ₱500,000
Total net gifts for the year: ₱1,100,000
Less annual exemption: ₱250,000
Taxable: ₱850,000
Donor’s tax: ₱51,000

Note: The annual exemption is shared across the year’s total gifts; splitting across children does not multiply the exemption.

8) Filing, Deadlines, and Payment Mechanics

A. Tax return used

Donations are typically reported in a Donor’s Tax Return (commonly BIR Form 1800 in practice).

B. Filing deadline

Donor’s tax returns are generally filed and paid within 30 days from the date the donation is made (i.e., upon perfection/consummation of the donation inter vivos), subject to special administrative rules for certain transaction types.

C. Where filed

Commonly, filing is done with the appropriate Revenue District Office (RDO) having jurisdiction over the donor’s residence or as otherwise prescribed for one-time transactions and property location-based processing (especially when securing authorization for transfer/registration of real property).

D. Certificate Authorizing Registration (CAR)

For donations of real property (and often certain share transfers), registration typically requires a BIR-issued Certificate Authorizing Registration (CAR) or equivalent clearance confirming that donor’s tax (and related taxes like DST) have been settled.

Without the CAR, the Registry of Deeds generally will not transfer title.

9) Documentary Requirements (Practical Checklist)

Exact requirements vary by RDO and transaction type, but common documents include:

For real property donations

Notarized Deed of Donation
Photocopies and originals (for verification) of:
- Transfer Certificate of Title (TCT) / Condominium Certificate of Title (CCT)
- Latest Tax Declaration
- Zonal value reference / computation sheet (as processed by BIR)
Valid IDs and TINs of donor and donee
Proof of relationship is not required for rate purposes (rate is flat), but may be requested for other administrative reasons
Donor’s tax return and proof of payment
DST return and proof of payment (where applicable)
SPA if filed through a representative
Additional clearances as required (e.g., LGU certificates for transfer tax/real property tax clearance)

For shares of stock

Deed of Donation
Stock certificates / proof of ownership
Corporate secretary certificate and/or transfer records
Valuation support (financial statements, market references depending on share type)
Tax returns and proof of payment; BIR clearances as needed for transfer in the corporate books

10) Common Issues When Donating to Children

A. “I’ll donate now so my child avoids taxes later.”

Donation can reduce what ends up in the estate, but it does not necessarily reduce total transfer costs because:

donor’s tax is due now,
real property transfers still require CAR, DST, local transfer tax, and registration costs,
and valuation is based on FMV at donation date.

The best approach depends on timing, asset appreciation, liquidity to pay taxes, and family objectives (including control).

B. Donations of family home / residence

There is no automatic donor’s-tax exemption simply because the asset is a family home or the donee is a child. The regular rules apply unless a specific statutory exemption category is met.

C. Retaining control: usufruct and conditions

Parents often want to give the property but keep use/control:

Donation of naked title with reserved usufruct can align legal ownership with lifetime control.
Conditions (e.g., prohibition on sale) must be drafted carefully; overly restrictive or legally problematic conditions can create enforceability issues.

D. Bargain sale to a child

If a property worth ₱5,000,000 is “sold” to a child for ₱1,000,000, the ₱4,000,000 difference can be treated as a gift, triggering donor’s tax (and possibly creating disputes over what taxes apply overall).

E. Collation / legitime considerations (succession law)

Even if title is transferred during lifetime, Philippine succession rules on legitime and collation (advancements to compulsory heirs) may affect how lifetime donations are accounted for when the estate is later settled. A donation to one child can become a source of later disputes if the family expects equalization.

F. Capacity and formalities

Donations must comply with Civil Code formalities:

Donations of real property generally require a public instrument (notarized deed) and acceptance.
Some donations require acceptance in the same instrument or in a separate public instrument, with proper notice.

Defects in form can create title/registration issues later, even if taxes were paid.

11) Penalties for Late Filing/Payment

Late filing or payment can trigger:

Surcharges
Interest
Compromise penalties
Delays in CAR issuance, delaying registration and title transfer

For real property, these delays are often the most painful consequence because they can block subsequent transactions (sale, mortgage, further transfers).

12) Practical Takeaways

Donations to children are generally taxed at a flat 6% on net gifts exceeding ₱250,000 per year.
There is no special donor’s-tax rate for children; the main universal relief is the ₱250,000 annual exemption plus statutory exemptions (government/qualified charities, etc.).
Real property donations are valuation-sensitive (higher of zonal vs assessed value) and process-heavy (CAR, DST, LGU transfer tax, registry fees).
Structuring (e.g., naked title + usufruct) can address control and family objectives but must be drafted and valued correctly.
Lifetime donations can interact with succession rules (legitime/collation) and can become flashpoints if not documented and communicated clearly.