Estate Tax in the Philippines: A Complete Legal Guide

I. Overview and Governing Law

Estate tax is a transfer tax imposed on the privilege of transmitting the estate of a decedent to his or her heirs, measured by the net estate at the time of death. In the Philippines, estate tax is governed primarily by the National Internal Revenue Code (NIRC), as amended (including the TRAIN law and subsequent regulations), alongside related civil law rules on succession and property regimes.

Headline rules (current framework):

Single rate: 6% estate tax on the net estate.
Standard deduction: ₱5,000,000 from the gross estate (resident decedents).
Family home deduction: Up to ₱10,000,000 of the family home’s value.
Share of the surviving spouse: Excluded (only the decedent’s net share is taxed).
Filing deadline: Within one (1) year from death (extensions possible).
Payment relief: Commissioner may grant installment/payment extensions in specific cases.

Practical effect: For many middle-class estates, the combination of the ₱5M standard deduction and the ₱10M family-home cap often brings the taxable base to zero or a modest amount, but documentation and valuation still matter.

II. Who Is Taxed and on What Property (Situs Rules)

A. Resident Citizens and Resident Aliens

Worldwide property is included in the gross estate: real, personal, tangible, intangible—wherever situated.

B. Nonresident Aliens (Not Residents and Not Citizens)

Gross estate includes only property situated in the Philippines.
Intangibles reciprocity rule: Intangible personal property (e.g., shares in a Philippine corporation) may be exempt if the decedent’s country either (i) does not impose estate/inheritance tax on similar Philippine-situs intangibles of nonresidents, or (ii) grants a reciprocal exemption to Philippine citizens/nonresidents.

III. The Gross Estate: What Goes In

The gross estate is the total value of all property and certain transfers at the time of death, including:

Real property (land and buildings).
Tangible personal property (vehicles, jewelry, artwork, etc.).
Intangible personal property (bank deposits, stocks, bonds, interests in entities).
Transfers in contemplation of death (e.g., gifts shortly before death that are essentially substitutes for testamentary transfers).
Revocable transfers (where the decedent kept a power to alter, amend, revoke).
Property passing under a general power of appointment.
Life insurance proceeds:
- Included if receivable by the estate, executor/administrator, or by a beneficiary if the designation is revocable.
- Excluded if receivable by a beneficiary with an irrevocable designation.

Property regimes: If the decedent was married under absolute community of property (ACP) or conjugal partnership of gains (CPG), only the decedent’s net share in community/conjugal assets forms part of the gross estate (typically ½, subject to proof of exclusive assets and liabilities).

IV. Valuation Rules (As of Date of Death)

Real property:
- Use the higher of (i) zonal value (BIR) or (ii) fair market value per local assessor (for land).
- For buildings/improvements, use the fair market value per assessor’s schedule or relevant valuation rule.
Shares of stock:
- Listed shares: Average of the highest and lowest quotation on the date of death (or nearest trading day if none).
- Unlisted common shares: Book value (adjusted for appraisal increments and non-allowable assets/liabilities per regulations).
- Unlisted preferred shares: Par value, unless regulations specify otherwise.
Bank deposits, cash, receivables: face value (subject to documentary proof).
Other property: Fair market value based on accepted valuation methods and documents.

V. Deductions and Exclusions from the Gross Estate

A. Automatic Exclusions

Surviving spouse’s net share in community/conjugal property is excluded from the decedent’s gross estate.

B. Standard and Specific Deductions (Residents)

Standard deduction: ₱5,000,000.
Family home: Deductible up to ₱10,000,000, if it qualifies as the family home under law and is part of the decedent’s estate.
Claims against the estate (debts): Valid and duly substantiated obligations outstanding as of death.
- Typically require: notarized debt instruments, proof of borrowing and actual use, identification of the creditor (with TIN if local), and statements of outstanding balance as of death.
Unpaid mortgages on property included in the gross estate (deductible to the extent of the decedent’s liability).
Losses incurred during estate settlement and arising from casualty (e.g., fire, theft), subject to strict conditions and timing.
Transfers for public use (e.g., bequests for the benefit of the government/public), subject to documentary proof.
Expenses of administration (court and other administration expenses) are generally deductible if necessary and actually incurred for estate settlement (documented).

Notably removed or curtailed under modern rules: Deductions for medical expenses and funeral expenses (which previously had caps) were eliminated as separate itemized deductions; the “vanishing deduction” (for property previously taxed) was also repealed. Always verify the current regulations when preparing returns, as documentary standards are stringent.

C. Nonresident Aliens

Proportionate deductions generally apply: allowable deductions are limited to the portion that the Philippine-situs gross estate bears to the entire worldwide gross estate, with supporting foreign and local documentation.

VI. Computing the Estate Tax: Step-by-Step

Determine the gross estate at date of death (by asset class and situs).
Segregate property regimes (ACP/CPG vs. exclusive property) and identify the decedent’s share.
Subtract exclusions (e.g., surviving spouse’s share).
Apply deductions (standard ₱5M; family home up to ₱10M; claims/mortgages; administration expenses; transfers for public use; other allowable deductions).
Arrive at the net estate.
Apply the 6% rate to compute the estate tax due.
Credit allowable foreign estate taxes (if any) subject to rules (residents), and withholding/creditable taxes if applicable.

Worked Example (illustrative only)

Gross estate (ACP): ₱28,000,000, entirely conjugal, includes a qualifying family home worth ₱12,000,000.
Decedent’s share in ACP: ₱14,000,000.
Less standard deduction: ₱5,000,000 → ₱9,000,000.
Less family home deduction (capped): ₱10,000,000, but only ₱9,000,000 remains—deduction capped by remaining base → ₱9,000,000.
Net estate: ₱0 → Estate tax due: ₱0.

Documentation duties remain (valuation, CAR, title transfers), even if no tax is due.

VII. Filing, Payment, and Deadlines

A. Return and Deadline

Estate Tax Return (BIR Form 1801) must be filed within one (1) year from death.
Venue: Generally the RDO where the decedent was domiciled at death (or as otherwise prescribed).
No separate “Notice of Death” requirement under modern rules; the estate return is the operative filing (always check the latest RRs if an RDO requests otherwise).

B. Payment Methods and Installments

Payment is due with the return.
The Commissioner may grant extensions:
- Filing extension: usually up to 30 days for meritorious cases.
- Payment extension/installments: up to 2 years (extrajudicial settlement), or up to 5 years (if under court-supervised settlement), if paying on time would cause undue hardship.
Installments are typically subject to interest; the NIRC pegs deficiency/delinquency interest to double the legal interest rate per BSP (administratively set), computed per annum.

C. Electronic Filing/Payment

Returns may be filed via eBIRForms/eFPS, and payments made through authorized agent banks and other BIR-authorized channels, subject to prevailing guidance.

VIII. Documentary Requirements (Typical, Not Exhaustive)

Death certificate; TIN of the decedent and TIN of the estate (the estate is a separate taxpayer).
Proof of relationship and heirship (marriage certificate, birth certificates, will/letters testamentary or extrajudicial settlement).
Inventory with valuations and supporting documents:
- Real property: titles (TCT/CCT), tax declarations, assessor certifications, zonal value printouts, mortgage statements (if any).
- Shares: stock certificates, corporate secretary’s certification, book value computation, broker certifications (for listed shares).
- Bank accounts: bank certifications of balances as of date of death; compliance with bank secrecy waiver requirements where applicable.
Debt/claims documentation (notarized instruments, proof of funds flow/use, creditor IDs/TIN, statements of balance).
Proof that property is a qualifying family home (and ownership/possession).
Publication (for extrajudicial settlements) per Rule 74, and other civil law compliance documents.
Proof of payment of estate tax and related charges.
Applications for extension (if any) with supporting hardship documentation.

Expect the BIR to scrutinize debts and family-home claims carefully. Incomplete or non-compliant paperwork is the top cause of delays in CAR issuance.

IX. Certificate Authorizing Registration (CAR) and Transfers

The CAR is required to transfer title or change registration of real property, shares, and certain other assets.
CAR is property-specific; multiple CARs may be issued for different asset groups.
After CAR issuance, proceed with Registry of Deeds, corporate secretary (for shares), LTO (for vehicles), etc., and pay local transfer fees/DST/registration costs as applicable.

Note: Estate transfer by succession is not a sale; capital gains tax does not apply to succession. However, documentary stamp tax (DST) and local transfer/registration fees may still be due depending on the asset and transfer act.

X. Enforcement, Penalties, and Assessments

Surcharge:
- 25% for failure to file/pay on time; 50% for willful neglect or false/fraudulent return.
Interest: Deficiency and/or delinquency interest (per NIRC formula tied to the legal interest rate) accrue until fully paid.
Civil and criminal liabilities may attach for fraud.
The government holds a statutory lien over the estate for unpaid taxes.
Prescription periods apply (generally three years from the last day to file, extendable in cases of false/fraudulent returns or failure to file).

XI. Special Topics and Practical Issues

Co-ownership vs. succession: An heir’s receipt can create co-ownership; sales among co-heirs after settlement are separate taxable events (e.g., CGT/DST on sale).
Foreign assets of residents: Obtain foreign valuations and proof of foreign estate taxes paid (potential foreign tax credits for residents).
Business interests: Partnership/corporate interests require formal valuations and corporate certifications; watch for related-party receivables/payables.
Trusts and powers: Assets subject to a revocable trust or general power of appointment are typically pulled back into the gross estate.
Life insurance: Clarify beneficiary designation and whether it is irrevocable; maintain copies of policy riders/endorsements.
Estate administration expenses: Courts’ and executors’ fees must be necessary and substantiated; mere estimates risk disallowance.
Estate tax amnesties: Congress has enacted amnesty programs for prior years estates; if dealing with older, unpaid estates, check whether a current amnesty applies (coverage periods, rates, and deadlines change by statute).
No-notice practice: While the Notice of Death has been dispensed with in modern rules, RDO practices vary; keep correspondence and comply with any documentary checklist provided by the RDO handling the case.

XII. Compliance Checklist (Quick Reference)

Identify property regime (ACP/CPG/separation) and map assets & liabilities.
Establish date-of-death valuations per rules.
Determine resident/nonresident status and situs.
Compute gross estate → exclusions → deductions → net estate.
Apply 6% rate; evaluate credits (foreign estate taxes, if any).
Prepare Form 1801 and complete documentary set.
File within 1 year; consider extensions/installments if warranted.
Secure CAR(s) and complete retitling/registration.

XIII. Frequently Asked Questions

1) Do we still deduct funeral or medical expenses? No separate deductions for funeral or medical expenses exist under the current rules; rely on the ₱5M standard deduction and other allowable deductions (family home, valid claims/mortgages, administration expenses, etc.).

2) Is the family home always fully deductible? It is deductible up to ₱10,000,000 and only if it qualifies as the family home and forms part of the estate. Any excess value over ₱10M remains in the taxable base.

3) What if an asset is co-owned with someone else (not the spouse)? Only the decedent’s proportionate interest is included in the gross estate (subject to proof of co-ownership, title, or contributions).

4) Can we pay in installments? Yes, with prior approval, if immediate payment would cause undue hardship. The law allows up to 2 years for extrajudicial settlements and up to 5 years for judicial settlements, typically with interest.

5) How do we handle bank deposits? Banks require a BIR clearance (CAR or appropriate authorization) before releasing funds. Get a bank certification of balance(s) as of the date of death and include deposits in the return.

6) Are life insurance proceeds taxable? Proceeds are included if payable to the estate/executor/administrator or to a beneficiary with a revocable designation. They are excluded if payable to a beneficiary with an irrevocable designation.

7) What about foreign-located assets? For residents, include them and document values; consider potential foreign estate tax credits. For nonresident aliens, include only Philippine-situs property; apply proportionate deductions and the intangibles reciprocity where applicable.

XIV. Final Notes

The 6% single rate, ₱5M standard deduction, and ₱10M family-home cap are the pillars of today’s computation.
Documentation quality (especially for debts and valuations) often determines whether deductions are allowed and how quickly the CAR is issued.
Because RDO practices and documentary checklists can differ, plan early, organize titles and proofs, and anticipate valuation and ownership questions.

This article is a comprehensive guide for Philippine estate tax compliance and planning. For sensitive or complex estates (foreign assets, trusts, closely held shares, disputed debts, or mixed property regimes), professional advice is strongly recommended.