Estate Tax Computation Basis Philippines

Below is a self-contained legal-style article that gathers, organizes, and explains virtually everything a Philippine practitioner or student normally needs to know about the basis for computing Philippine estate tax. It reflects law and guidance in force as of 7 July 2025. (Legislation and BIR issuances change—always check the latest.)


1. Statutory Framework

Provision Key subject-matter
National Internal Revenue Code (NIRC), 1997, as amended – Secs. 84-97 Imposition, situs, composition of the gross estate, allowable deductions, tax credit, filing & payment
Republic Act (RA) 10963 — TRAIN Act (effective 1 Jan 2018) Flattened the estate-tax rate to 6 % and overhauled deductions
Revenue Regulations (RR) 12-2018, 17-2023 & related Revenue Memoranda / BIR Forms 1801 & 1904 Implement TRAIN amendments; prescribe procedures, documentary requirements, eFPS/eBIR filing, and the “Estate Tax Amnesty” (RR 6-2019; extended by RA 11956 to 14 June 2025)
Civil Code, Family Code, and Family Courts Act Define conjugal/community property and legitime affecting net share of decedent
Rules of Court, Rule 73-90 Settlement of estate through probate or extrajudicial settlement
Relevant jurisprudence (e.g., Commissioner v. Estate of Benigno Tudtud, G.R. 198319, 15 Jan 2020) Clarify taxable transfers, valuation rules, burden of proof

2. Basic Concepts

Term Philippine meaning
Estate tax A transfer tax on the privilege of transmitting property upon death, imposed on the net estate of every decedent, resident or non-resident.
Decedent’s domicile Governs whether world-wide assets (residents/ citizens) or only Philippine-situs assets (non-resident aliens) enter the gross estate.
Gross estate All property owned, possessed, controlled, or inchoately owned at the instant of death, plus certain deemed-transfers (revocable transfers, transfers in contemplation of death, transfers with retention of usufruct).
Net estate Gross estate minus allowable deductions (standard deduction, family-home deduction, claims, losses, vanishing deduction, etc.).

3. The Step-by-Step Computation

Step 1 – Identify the Property & Determine Situs

Asset type Situs rule
Real property Where located
Tangible personal property Where physically situated
Intangible personal property (shares, bank deposits, receivables, options) Issued, used, or having legal situs in the Philippines and no reciprocity exception (Sec. 104, NIRC).

Reciprocity clause: Intangibles of a non-resident alien are excluded if the decedent’s country (a) does not impose estate tax on similar Philippine intangibles or (b) allows a tax credit in an amount equal to Philippine estate tax.

Step 2 – Value Each Item as of Date of Death

Property Valuation basis
Real property Higher of (i) Fair Market Value (FMV) per local assessor’s schedule or (ii) BIR zonal value. Use latest schedules in force at death.
Listed shares Average of the high and low selling price on date of death (or nearest trading day).
Unlisted common shares Book value based on latest audited financials preceding death.
Unlisted preferred / redeemable shares Par value (if no par, fair valuation).
Personal and mixed property Fair market value (arm’s-length price).
Foreign currency deposits Convert at BSP reference rate on death.
Life-insurance proceeds Includible only if revocably designated beneficiary. Otherwise excluded.

Step 3 – Compile the Gross Estate Schedule

Typical columns: description, certificate / TCT / Acct No., location, FMV per appraisal/zonal, share valuation, total.

Step 4 – Apply Allowable Deductions

TRAIN-era Deduction Ceiling / Conditions
Standard deduction (Sec. 86(A)(5)) ₱ 5 million – automatic, no substantiation.
Family home FMV up to ₱ 10 million; excess reverts to taxable gross. Must be family residence and title in decedent/spouse/unmarried minor children.
Claims against the estate Valid, enforceable debts contracted in good faith and consideration in full (with notarized debt instruments if incurred within 3 yrs before death). Deductible net of BIR-withheld final tax if it’s a bank deposit.
Claims against insolvent persons Debts due decedent that are uncollectible.
Losses Arising from calamity, theft, casualty within 1 yr after death and not compensated by insurance.
Vanishing (property previously taxed) deduction Gradually shrinking deduction (100 %, 80 %, 60 %, 40 %, 20 %) for property acquired within 5 yrs prior to death and already subject to donor’s or estate tax.
Transfers for public use Bequests to national govt, LGUs, accredited charities, etc.
Share of surviving spouse In absolute community / conjugal partnership regimes, exclude spouse’s half. Prepare Net Share Computation sheet.
Foreign estate-tax paid Tax credit, but not exceeding proportion of Phil. net estate × foreign assets ÷ total net estate.

Medical and funeral expenses were abolished as separate deductions by the TRAIN Act; their impact is subsumed into the ₱ 5 m standard deduction.

Step 5 – Arrive at the Net Estate

Net Estate = Gross Estate – (allowable deductions + surviving spouse’s share)

Step 6 – Compute Estate Tax at 6 % Flat Rate

Estate Tax Due = Net Estate × 6 %

If the calculation yields zero or negative (because standard deduction > gross estate), no estate tax is payable but return still required when gross estate > ₱ 200,000 or if estate contains registrable assets (real property, shares, motor vehicles).

Step 7 – File and Pay

Particular Rule
Due date Within 1 year from death. BIR may grant extension (Sec. 91) for meritorious causes: (a) filing—max 30 days; (b) payment—up to 5 yrs (judicial settlement) or 2 yrs (extrajudicial).
Form BIR Form 1801; eBIR/eFPS or manual with AAB / RDO having jurisdiction over decedent’s domicile.
Payment options Cash, Manager’s Check, ONETT facilities, installment (with prior approval; interest accrues on unpaid balance).
Certification of e-CAR Electronic Certificate Authorizing Registration (BIR Form 2313-R) released only after full payment or availment of amnesty. Needed to transfer titles.

4. Special Topics & Edge Cases

4.1 Estate Tax Amnesty (RA 11213, extended by RA 11956)

Covers estates of decedents who died on or before 31 Dec 2022 with unfiled or unpaid estate tax. Flat rate 6 % of net undeclared estate or minimum ₱ 5,000 if no valuation document; no penalties and interest. Filing period now ends 14 June 2025.

4.2 Non-Resident Aliens

Taxable only on Philippine-situs assets. Intangibles apply the reciprocity test. Certain treaty provisions (e.g., Philippines-Japan, Phil-Germany tax treaties) override NIRC for double-tax relief.

4.3 Disposition of Conjugal / Community Property

Prepare a Property Relation Worksheet:

  1. List common property (per title registries, ORCR, bank statements)
  2. Allocate 50 % to surviving spouse → deduction
  3. Decedent’s 50 % share enters gross estate (then deductions).

4.4 Trusts, Legitimate Transfers & Anti-Avoidance

  • Transfers in contemplation of death: if made within 3 yrs prior to death and donative intent is apparent, property is clawed back to the gross estate.
  • Revocable trusts: entire corpus includible.
  • Life insurance: proceeds excluded if irrevocably designated beneficiary; otherwise included and taxed.

4.5 Business-Owner Estates

  • Share valuation often largest driver; BIR routinely audits book value vs. appraisal (earnings- or asset-based).
  • Buy-sell agreements are not automatically binding on BIR unless price or formula is bona fide and at arm’s length.
  • Closely held corporations must withhold 6 % estate tax on redemption of shares if estate tax still unpaid (RR 6-2023).

4.6 Agricultural & CARP Lands

Transfer of agricultural land to heirs remains subject to estate tax. Subsequent distribution to farmer-beneficiaries may fall under CARP exemptions, but only after issuance of CLOA or EP and compliance with DAR/BIR joint rules.

4.7 Penalties, Surcharges, Interest

Failure Surcharge Interest Compromise
Late filing 25 % of basic tax 12 % p.a. (or prevailing legal rate) from original due date
Late payment 25 % 12 % p.a. on unpaid tax
Willful neglect / fraud 50 % 12 % p.a. Possible criminal action

5. Sample Computation (Illustrative)

Facts: Juan, a resident Filipino, died 1 Feb 2025 leaving: • Family home (Quezon City) FMV ₱ 12 m (zonal higher) • Vacant lot (Laguna) FMV ₱ 3 m • Listed shares FMV (average high-low) ₱ 4 m • Bank deposit ₱ 2 m Debts: ₱ 800 k (documented), unpaid hospital bill ₱ 400 k. Married under absolute community; spouse survives. No prior taxable donations.

Item Amount (₱)
Gross estate 12 m + 3 m + 4 m + 2 m = 21 m
Less: Surviving spouse’s share (½ of community) 10.5 m
Decedent’s share 10.5 m
Less: Standard deduction 5 m
Less: Family home deduction (cap 10 m) 10 m
(but limited to decedent’s share in FH) => decedent owns 6 m; deductible only 6 m
Less: Claims 1.2 m
Net estate 10.5 m – 5 m – 6 m – 1.2 m = (1.7 m) → effectively zero
Estate Tax @ 6 % ₱ 0

Return must still be filed; e-CARs for both real properties issued upon compliance.


6. Procedural Checklist for Practitioners

  1. Gather documents: Death certificate, TIN of estate, certified true titles, CAR, stock certificates, bank certifications, audited FS of corporations, notarized debt instruments, list of heirs.
  2. Secure taxpayer identification (TIN) for the Estate via BIR Form 1904 → RDO where decedent was domiciled.
  3. Prepare appraisal & schedules; determine community property regime.
  4. Electronically pay or validate tax amnesty eligibility.
  5. File BIR Form 1801 + attachments (certified list & values, sworn declaration, extra-judicial settlement or court-issued letters testamentary).
  6. Wait for assessment / issuance of e-CARs; pursue title transfers.

7. Common Pitfalls

  • Under-valuing real property using LGU assessor’s value when BIR zonal is higher.
  • Ignoring reciprocity for U.S. intangible assets (the U.S. does tax Philippine intangibles, so no reciprocal exemption).
  • Claiming medical/funeral expenses post-TRAIN—no longer allowed.
  • Late estate settlement; properties remain in decedent’s name preventing legitime distributions and causing capital gains-tax issues on later sales.
  • Missing vanishing deduction for property received by the decedent from parents within 5 yrs.

8. Outlook & Pending Measures

As of mid-2025, Congress is studying bills to (a) raise the standard deduction to ₱ 7.5 m, (b) make the family-home deduction unlimited up to FMV, and (c) digitize e-CAR issuance within 15 days. Watch for BIR draft regulations once enacted.


9. Conclusion

The Philippine estate-tax framework is now simpler—one 6 % rate, generous automatic deductions—but compliance remains documentation-heavy and deadline-driven. A correct computation starts with accurate valuation and a clear understanding of property regimes, proceeds through specific statutory deductions, and ends with timely filing, payment, and e-CAR issuance so heirs can freely transfer or dispose of their inheritance.

This article is for educational purposes and does not constitute legal advice. Always verify current statutes, regulations, and BIR rulings or engage qualified Philippine tax counsel for specific estates.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.