Estate Tax Computation Basis in the Philippines – A Comprehensive Legal Guide (as of July 2025)
This article synthesizes the rules found mainly in Sections 84-97 of the National Internal Revenue Code (NIRC) of 1997, as last amended by Republic Act No. 10963 (“TRAIN Law”, effective 1 January 2018), its implementing Revenue Regulations (RR No. 12-2018, RR No. 17-2021, etc.), and related rulings and circulars. It is intended for academic guidance only; always corroborate with the latest issuances or seek professional advice for actual cases.
1. What the Estate Tax Is & Who Must Pay
| Key Point | Explanation |
|---|---|
| Nature | A transfer tax on the privilege of transmitting a decedent’s property to his/her heirs, not a tax on the property itself. |
| Taxpayer | The estate (through its executor, administrator, or heir) is primarily liable; heirs are subsidiarily liable in proportion to the property they receive. |
| Governing Laws | NIRC §§ 84-97; Civil Code provisions on succession; special laws (e.g., RA 4917 on retirement benefits); BIR rulings. |
2. Steps in Computing the Tax
- List and value the Gross Estate.
- Deduct amounts allowed by law to arrive at the Net Estate.
- Apply the 6 % flat rate to the Net Taxable Estate.
- Credit any foreign estate tax* (citizen/resident decedents only).
- File BIR Form 1801 and pay within 1 year from death (extensions/installments possible).
Each step is detailed below.
3. The Gross Estate
3.1. Property Included
| Decedent | Property Situs Rules |
|---|---|
| Resident citizen or resident alien | Worldwide assets (inside & outside PH). |
| Non-resident alien | Only property situated in the Philippines. |
3.2. Mandatory Inclusions (NIRC § 85)
- All proprietary interests owned at death.
- In transfers in contemplation of death or revocable transfers.
- Property passing under general power of appointment.
- Life-insurance proceeds payable to the estate or under revocable beneficiary designation (excluded if irrevocable & beneficiary is not the estate).
- Unsupported withdrawals from joint accounts (to the extent of the decedent’s contribution).
3.3. Valuation Rules
| Asset | Basis of Value |
|---|---|
| Real property | Higher of BIR zonal value or local assessor’s fair market value as of date of death. |
| Listed shares | Average of the highest and lowest closing price on each trading day for the 30 days immediately preceding death. |
| Unlisted common shares | Book value per latest audited FS (prior to death). |
| Unlisted preferred shares | Par value. |
| Banks deposits | Final balance plus accrued interest to date of death. |
| Foreign currency deposits | Convert using Bangko Sentral ng Pilipinas (BSP) reference rate on date of death. |
| Properties outside PH | Use foreign fair market value converted to Philippine pesos at BSP rate. |
4. Allowable Deductions
Sections refer to NIRC § 86 (A) for citizens/residents and § 86 (B) for non-resident aliens.
4.1. Ordinary Deductions – “ELIT”
| Category | Highlights | Cap/Limits |
|---|---|---|
| E – Expenses (funeral¹ & judicial) | Funeral expenses ≤ 5 % of Gross Estate but not > ₱ 200,000 (train retained cap). Judicial expenses actually paid. | |
| L – Losses | Losses during estate settlement (not insured, not claimed for income tax). | |
| I – Indebtedness | Valid personal debts & mortgages duly notarized before death. | |
| T – Taxes | Unpaid real estate taxes, business taxes, etc., accrued before death. |
¹ Many practitioners simply rely on the ₱ 5 million Standard Deduction (see § 4.3) and forego detailed funeral substantiation unless the estate is large enough that the ELIT deduction is still advantageous.
4.2. Special Deductions
| Deduction | Statutory Cap / Conditions |
|---|---|
| Family Home (§ 86 [A] [5]) | Deduct actual FMV up to ₱ 10 million; any excess becomes part of gross estate. |
| Retirement benefits under RA 4917 | Entire amount exempt if meeting RA 4917 conditions. |
| Transfers for public use | Bequests, legacies or donations to national government or accredited NGOs. |
| OMVUC (Other Monetary Value Unique Cases) | E.g., certain GSIS/SSS proceeds, war damage payments – expressly exempted by special law. |
4.3. Standard Deduction – ₱ 5 million
- Automatic; no substantiation required.
- Applies once per decedent, regardless of number of heirs or executors.
4.4. Share of Surviving Spouse (SSS)
Estate tax is imposed only on the decedent’s share in conjugal/community property.
Formula:
Net *conjugal* estate × 50 % → share allocable to surviving spouseThis share is deducted from the gross estate after ordinary & special deductions but before arriving at the net estate.
4.5. Deductions for Non-Resident Aliens (NIRC § 86 [B])
| Rule | Explanation |
|---|---|
| Pro-rata deduction | Allowed deductions (except funeral, judicial & medical) are multiplied by a fraction: |
| Philippine-situs gross estate ÷ Worldwide gross estate. | |
| Reciprocity for Intangibles | Intangible personal property in the Philippines is exempt if the decedent’s country (a) imposes no estate/GRT on Philippine intangibles, or (b) allows a similar exemption to Filipinos. |
5. Net Taxable Estate & Tax Rate
| Item | Amount |
|---|---|
| Net Estate | Gross Estate − Total Deductions (including SSS) |
| Tax Rate | 6 % flat (TRAIN Law) |
| Tax Due | 6 % × Net Estate |
| Foreign Estate Tax Credit | Lesser of (i) foreign estate tax actually paid or (ii) pro-rata Philippine estate tax attributable to that foreign situs property (citizens/residents only; NIRC § 86 [C]). |
6. Filing & Payment Mechanics
| Requirement | Details |
|---|---|
| Return | BIR Form 1801, Estate Tax Return. |
| Deadline | Within 1 year from death (NIRC § 90 [A]); BIR may grant extension of filing (up to 30 days) and/or payment (up to 5 years if estate is settled through courts; 2 years otherwise) upon showing undue hardship. |
| Installments | Allowed even without a formal extension: unpaid balance earns 20 % p.a. interest. |
| Where to File/Pay | RDO where decedent was a resident; if non-resident, at RDO 39 (Quezon City). |
| Clearance (eCAR) | BIR issues an electronic Certificate Authorizing Registration after full payment; required to transfer titles/shares. |
7. Penalties & Assessments
- Surcharge: 25 % (failure to file/pay) or 50 % (willful neglect or false return).
- Interest: 20 % per annum on the unpaid amount.
- Deficiency Assessment Period: BIR generally has 3 years from the date the return was filed to assess; 10 years if no return or a false/fraudulent return.
8. Estate Tax Amnesty (Contextual Note)
- RA 11213 (Estate Tax Amnesty Act, 2019) covered deaths up to 31 December 2017.
- RA 11956 further extended the availment period to 14 June 2025 and allowed installment payment until 14 June 2027.
- Tax rate: 6 % of net undivided estate or minimum ₱5,000. Does not affect deaths on or after 1 January 2018 (these must follow regular computation above).
9. Practical Computation Example (Resident Citizen)
| Item | Amount (₱) |
|---|---|
| 1. Real property (FMV) | 15,000,000 |
| 2. Listed shares | 3,500,000 |
| 3. Bank deposits | 1,000,000 |
| Gross Estate | 19,500,000 |
| Less Ordinary Deductions (ELIT) | (400,000) |
| Less Family Home (≤ ₱10 M) | (10,000,000) |
| Less Standard Deduction | (5,000,000) |
| Sub-total | 4,100,000 |
| Less SSS (half of conjugal prop. ≈ 2 M) | (2,000,000) |
| Net Taxable Estate | 2,100,000 |
| Estate Tax Due (6 %) | 126,000 |
(Rounded; actual values depend on documentary evidence and FMVs.)
10. Common Compliance Pitfalls
- Undocumented debts – promissory notes must pre-date death and be notarized.
- Valuation gaps – using zonal value below published rates or outdated assessed values invites deficiency assessment.
- Over-claimed family home deduction – any FMV over ₱ 10 M is taxable.
- Late filings – even if no tax is due (because of deductions), surcharge applies to late returns.
- Failure to substantiate foreign tax credits.
11. Recent & Upcoming Developments
| Development | Impact |
|---|---|
| eCAR digitization | Faster release, but requires prior electronic Documentary Stamp Tax (eDST) confirmation and payment traceability. |
| Mandatory TIN for heirs | BIR now requires a TIN for each heir listed, even if no immediate distributions occur. |
| Proposed increase of standard deduction to ₱ 7 million | Pending in Congress (House Bill No. in committee stage); not yet law as of July 2025. |
12. Key Take-Aways
- The 6 % flat rate makes Philippine estate taxation relatively straightforward, but valuation and deductions require meticulous documentation.
- The ₱ 5 million standard deduction plus ₱ 10 million family-home deduction shield many middle-class estates from tax, yet estates with large business interests or foreign assets still face significant liabilities.
- Observe timelines—one-year filing, 20 % annual interest, and the BIR’s 3-year assessment window.
- Consider estate-planning tools (life insurance with irrevocable beneficiaries, living trusts, inter-vivos donations, corporate structuring) early to minimize exposure.
Disclaimer
This guide condenses complex regulations for educational purposes. For estate planning, probate, or tax-compliance decisions, consult a Philippine lawyer or tax professional familiar with the latest BIR rulings and judicial pronouncements.