Introduction

In the Philippines, estate tax is a form of transfer tax imposed on the privilege of transmitting the property of a deceased person (decedent) to their heirs or beneficiaries. Governed primarily by the National Internal Revenue Code (NIRC) of 1997, as amended by Republic Act No. 10963 (Tax Reform for Acceleration and Inclusion or TRAIN Law) and subsequent regulations, estate tax ensures that the government collects revenue from the intergenerational transfer of wealth. This tax applies to the net estate of Filipino citizens, resident aliens, and non-resident aliens with property in the Philippines.

The computation of estate tax becomes particularly intricate when the decedent leaves behind multiple heirs, as it involves not only valuing the estate but also addressing issues of succession, partition, and potential disputes among heirs. While the tax is levied on the estate as a whole, the distribution among heirs follows either testate (with a will) or intestate (without a will) succession rules under the Civil Code of the Philippines. This article provides a comprehensive overview of the estate tax computation process, including legal bases, inclusions, deductions, valuation methods, filing requirements, and special considerations for cases involving multiple heirs.

Legal Framework

The estate tax regime in the Philippines is outlined in Sections 84 to 97 of the NIRC. Key amendments include:

TRAIN Law (RA 10963, effective January 1, 2018): Introduced a flat 6% estate tax rate on the net estate, replacing the previous graduated rates (ranging from 5% to 20%). It also increased the standard deduction to PHP 5 million and eliminated certain deductions like the family home allowance up to PHP 1 million (now consolidated into the standard deduction).
Bureau of Internal Revenue (BIR) Regulations: Revenue Regulations (RR) No. 12-2018 and subsequent issuances provide detailed guidelines on computation, valuation, and compliance.
Civil Code Integration: Succession rules under Articles 774 to 1105 of the Civil Code determine heirship and distribution, which indirectly affect tax computation, especially in partitioning the estate.

For non-resident aliens, only Philippine-situs properties are taxable, while citizens and residents are taxed on worldwide assets.

When Estate Tax Applies

Estate tax is due upon the death of the owner, regardless of whether the transfer is through a will, intestate succession, or other modes like donation mortis causa. It applies to:

Filipino citizens and resident aliens: Global estate.
Non-resident aliens: Only properties situated in the Philippines (e.g., real property, shares in Philippine corporations).

The tax accrues at the time of death, but computation considers the estate's value as of that date. In cases of multiple heirs, the estate is treated as a single taxable unit; individual heirs are not taxed separately on their shares until distribution (which may trigger other taxes like capital gains if sold).

Components of the Gross Estate

The gross estate includes all property owned by the decedent at the time of death, valued at fair market value (FMV). Inclusions are:

Real Property: Land, buildings, and improvements in the Philippines (for all decedents) and abroad (for citizens/residents). Valued based on the higher of zonal value (set by BIR) or assessed value (from local government).
Tangible Personal Property: Vehicles, jewelry, furniture, etc.
Intangible Personal Property: Bank deposits, stocks, bonds, receivables, intellectual property rights.
Transfers in Contemplation of Death: Properties transferred within three years before death if intended as inheritance (presumed if no adequate consideration).
Revocable Transfers: Where the decedent retained control.
Property Passing Under General Power of Appointment: If the decedent had authority to dispose of it.
Proceeds of Life Insurance: If the decedent retained incidents of ownership or if payable to the estate/heirs.
Retirement Benefits and Pensions: Taxable if not previously taxed.

For multiple heirs, joint properties (e.g., conjugal or co-owned) require apportionment. Under the conjugal partnership regime (default for marriages after August 3, 1988), only the decedent's share in conjugal property is included, plus separate properties.

Allowable Deductions

Deductions reduce the gross estate to arrive at the net estate. Under the TRAIN Law, deductions include:

Standard Deduction: PHP 5 million for all estates (no proof required).
Claims Against the Estate: Debts owed by the decedent, supported by notarized documents.
Claims of the Deceased Against Insolvent Persons: If uncollectible.
Unpaid Mortgages or Taxes: On included properties.
Losses, Indebtedness, and Taxes (LIT): Casualty losses post-death but before filing, if not claimed elsewhere.
Transfers for Public Use: Bequests to government or charitable institutions.
Vanishing Deduction: For properties inherited within five years prior, to avoid double taxation (graded deduction: 100% if within 1 year, down to 20% if 4-5 years).
Family Home: Up to PHP 10 million (previously PHP 1 million, but now separate from standard deduction under RR 12-2018).
Medical Expenses: Up to PHP 500,000 incurred within one year before death.

For non-resident aliens, deductions are prorated based on Philippine gross estate over worldwide gross estate.

In multiple-heir scenarios, deductions are applied to the entire estate before distribution. Disputes over deductions (e.g., validity of claims) may require court intervention via settlement proceedings.

Computation of Estate Tax

The estate tax is computed as follows:

Determine Gross Estate: Sum of all includible properties at FMV.
Subtract Deductions: To get the Net Estate.
Apply Tax Rate: 6% on the Net Estate (no exemption threshold beyond the standard deduction).
- Formula: Estate Tax = 6% × Net Estate

Example: Suppose a decedent's gross estate is PHP 20 million, deductions total PHP 8 million (including PHP 5 million standard). Net Estate = PHP 12 million. Tax = 6% × PHP 12 million = PHP 720,000.

For multiple heirs, the tax is paid from the estate before distribution. If heirs advance payment, they can seek reimbursement proportionally.

Special Rules for Conjugal Property

In absolute community or conjugal partnership:

Community/conjugal properties are divided equally (unless otherwise agreed).
Only the decedent's half is part of the gross estate.
Surviving spouse's share is not taxed.

Valuation Methods

Real Property: Higher of BIR zonal value or local assessed value.
Stocks: Listed – average of high/low on death date; Unlisted – book value.
Foreign Assets: Valued per foreign laws, with reciprocity for non-residents.
Appraisals may be needed for unique assets; BIR can challenge valuations.

Distribution Among Multiple Heirs

After tax payment, the net estate is distributed:

Testate Succession: Per will, subject to legitime (forced heirship: 50% to legitimate children, etc.).
Intestate Succession: Per Civil Code – legitimate children/spouse get priority; collaterals if none.
Partition: Heirs may agree extrajudicially (if no debts/will) or judicially. Tax clearance (Certificate Authorizing Registration or CAR) is required for transfers.

Multiple heirs may face issues like:

Disputes: Over asset valuation or shares, resolved in probate court.
Co-ownership: Undivided estate may lead to sales, triggering capital gains tax (6% on gain).
Non-Resident Heirs: May require tax treaties to avoid double taxation.

Filing and Payment Requirements

Who Files: Executor, administrator, or any heir (jointly liable).
Deadline: Within one year from death (extendable for cause).
Where: BIR Revenue District Office (RDO) of decedent's residence.
Documents: Death certificate, will (if any), inventory, appraisals, deduction proofs.
Payment: In full or installments (up to 5 years if estate > PHP 2 million and illiquid).
Electronic Filing: Via eBIRForms for estates over PHP 2 million.

Late filing incurs 25% surcharge, interest (6% per annum), and compromise penalties.

Penalties and Compliance

Deficiencies: BIR audits may assess additional tax; appeals to Court of Tax Appeals.
Fraud: 50% surcharge if willful.
Criminal Liability: For evasion, fines up to PHP 100,000 or imprisonment.
Amnesty: Periodic amnesties (e.g., under RA 11213) allow settlement of delinquencies.

Planning and Mitigation Strategies

While not evasion, legal planning includes:

Lifetime donations (subject to 6% donor's tax).
Trusts or corporations for asset management.
Insurance policies designating irrevocable beneficiaries.
For multiple heirs, clear wills to minimize disputes.

Conclusion

Estate tax computation for deceased owners with multiple heirs in the Philippines requires meticulous valuation, deduction application, and compliance with BIR rules. The flat 6% rate simplifies calculation, but complexities arise from asset types, heir disputes, and succession laws. Proper estate planning and timely filing are crucial to ensure smooth transmission of wealth while minimizing liabilities. Heirs should consult tax professionals or lawyers for case-specific advice, as laws may evolve through new legislation or rulings.