Estate Tax Computation for Long-Outstanding Estates in the Philippines
(A comprehensive legal-practitioner’s guide as of 29 April 2025)
1. Introduction
An “outstanding” or “unsettled” estate is one whose settlement—including the payment of estate tax—has not been completed within the statutory deadlines after the decedent’s death. In the Philippines, the Government’s right to the estate tax is a tax lien that attaches to every transmissible property of the decedent and follows the property until the liability is discharged. Long-outstanding estates thus present three recurring questions for heirs, counsel, and accountants:
- Which version of the law applies to the computation (several rate structures have existed since 1916)?
- What deductions and valuation rules are available as of the date of death?
- How do penalties, surcharges, interest, amnesty laws, or prescription affect the amount now payable?
This article answers each question in depth and sets out a step-by-step computation framework practitioners can apply to estates that have remained unsolved for years—or even decades.
2. Statutory Framework and Evolution of the Estate Tax
| Period of death | Governing law & key issuances | Rate schedule on net estate | Core deductions in force |
|---|---|---|---|
| Before 1986 | National Internal Revenue Code (NIRC) of 1977; PD 69 series | Graduated 2%–15% | Funeral (5% up to ₱40k), judicial expenses, debts, transfers for public use, vanishing deduction, family home (₱300k) |
| 1986 – 31 Dec 1997 | Exec. Order 273; RA 8424 (partial) | Graduated 3%–60% (top bracket >₱10 M) | Same, with indexed caps |
| 1 Jan 1998 – 31 Dec 2017 | RA 8424 (full); RR 2-2003 | Graduated 5%–20% (top bracket >₱10 M) | Funeral (5% up to ₱200k), Medical (within 1 yr – ₱500k cap), Standard ₱1 M, Family home ₱1 M, Vanishing, etc. |
| 1 Jan 2018 onward | TRAIN Law (RA 10963); RR 12-2018 | Flat 6 % of net estate | Simplified: Standard ₱5 M; Family home ₱10 M; claims against estate; Vanishing deduction retained; Medical & funeral deductions removed. |
| Amnesty window (all deaths ≤ 31 May 2022) | Estate Tax Amnesty Act (RA 11213) + Extension Act (RA 11956); RRs 4-2019, 17-2019, 6-2023 | 6 % of the net estate or 6 % of the decedent’s undeclared estate (whichever is higher); no penalties/interest; immunity from civil, criminal & administrative cases; deadline 14 June 2025 | Same TRAIN-era deductions OR deductions applicable on date of death—practitioner chooses the more favorable. |
Key idea: The controlling law is determined by the date of death—but the taxpayer may elect the 6 % amnesty in lieu of the original rates, provided the death occurred on or before 31 May 2022.
3. Step-by-Step Computation (Regular Regime)
Determine gross estate (Sec. 85, NIRC)
- Philippine-situs property of any decedent; worldwide property if the decedent was a Filipino citizen or resident alien.
- Include: real property (FMV = higher of zonal value or assessed value); tangible personal property; shares (par or book value for unlisted, closing price for listed on date of death); bank deposits, insurance proceeds payable to estate, accrued income, usufructs and retained interests (Sec. 81 “transfer in contemplation of death”).
Ascertain allowable deductions based on the law in force on the decedent’s death.
- Funeral expenses (pre-TRAIN only);
- Judicial & extrajudicial settlement expenses (actual & necessary);
- Claims against the estate (legally enforceable, contracted in good faith, duly notarized if >₱250 K);
- Claims against insolvent persons;
- Unpaid mortgages & taxes;
- Losses incurred during settlement (if within 6 months and not compensated by insurance);
- Vanishing deduction (property subject to donor’s or estate tax within 5 years);
- Transfers for public use;
- Family home deduction (varies by period, currently ₱10 M cap);
- Standard deduction (₱1 M pre-TRAIN; ₱5 M TRAIN-era).
Compute net estate = Gross estate – Allowed deductions.
Apply the correct tax rate table (or flat 6 %, post-TRAIN).
Add penalties if the estate return is filed late:
- Surcharge: 25 % of basic tax for late filing without fraud; 50 % if the BIR alleges filing was fraudulent.
- Interest: rate under Sec. 249 (B) NIRC—12 % per annum since 1 Jan 2018—computed on basic tax (excluding surcharge) from statutory due date (1 year from death) to date of payment.
Issue: Prescription of assessment/collection.
- If no estate return was ever filed, the BIR’s right to assess is perpetual (Sec. 222[a] last par.).
- Once assessed, BIR has 5 years to collect by distraint, levy or court action.
- For long-outstanding estates, the absence of any return typically means no prescription has begun; the BIR may assess at any time, hence penalties accrue indefinitely until amnesty or payment.
4. Step-by-Step Computation (Amnesty Option)
Eligibility: Decedent died on or before 31 May 2022 and no estate tax was paid, or a deficiency remains.
- Choose valuation date: value the estate as of the date of death (not today).
- Compute net estate using either:
- deductions available on the date of death, or
- the simplified TRAIN-era deductions (standard ₱5 M + family home ₱10 M),
whichever yields the lower tax.
- Amnesty tax = 6 % × net estate (but not less than ₱5,000).
- File all documents at the Revenue District Office (RDO) where the decedent was last domiciled:
- Estate Tax Amnesty Return (BIR Form 2118-EA);
- Expanded Extrajudicial Settlement (if any) with conformé of all heirs;
- Certified true copies of titles, tax declarations, OR/CR for vehicles, latest bank statements, share certificates;
- Proof of valuation (zonal values, BVAL, audited FS for companies).
- Pay on or before 14 June 2025 (no extensions).
- Receive Certificate of Availment → submit to Registry of Deeds/LTO/LR for cancellation of liens and transfer of titles.
- Immunities granted: BIR cannot prosecute heirs for estate-tax-related violations for the covered period; local transfer taxes remain payable.
Note: Cash-strapped heirs may still apply for payment by installment (Sec. 91, NIRC) even under the amnesty; interest accrues only on unpaid balance after the grant of installment authority.
5. Worked Illustrations
5.1 Decedent died 12 June 1990 (estate left unsettled)
| Item | FMV @ 1990 | Notes |
|---|---|---|
| Residence lot & house | ₱800,000 | zonal value > assessed; FMV used. |
| Rice land Nueva Ecija | 1,200,000 | agricultural @ ₱40/sq m. |
| Bank deposits | 400,000 | passbook balance. |
| Shares (unlisted family corp.) | 600,000 | book value. |
| Gross estate | ₱3,000,000 |
Deductions (1990 rules)
- Funeral 5 % (capped ₱40 k): ₱40,000
- Judicial expenses actually paid in 1990-1992: ₱60,000
- Claims against estate (notarized debt to sibling): ₱200,000
- Family home deduction ₱300,000
Net estate = 3,000,000 – (40k + 60k + 200k + 300k) = ₂₄₀₀ 000
Rate table 2 %–15 % (pre-86) yields basic tax ₱135,000.
Penalties, 1991-2025 (34 years)
- Surcharge 25 % = ₱33,750
- Interest 20 % p.a. (1991-2017) + 12 % (2018-2025) = approx ₱1,350,000+
Total liability today: ≈ ₱1.5 M
Amnesty alternative:
Net estate (choose TRAIN deductions)
- Standard ₱5 M ➜ exceeds gross; but deduction limited to gross→ zero basic tax? No, deduction cannot exceed gross estate; net estate = 0 → minimum amnesty tax ₱5,000.
Savings ≈ ₱1.495 M, plus immunity from penalties.
5.2 Decedent died 1 March 2015; estate worth ₱25 M
Regular computation (graduated 5 %–20 %): net estate after deductions ₱18 M → tax ₱3.6 M; penalties 2016-2025 ≈ 1.1 M; total ≈ ₱4.7 M.
Amnesty (6 % × ₱18 M) = ₱1.08 M payable until 14 June 2025.
5.3 Decedent died 1 June 2023 – not covered by amnesty
Apply TRAIN flat 6 %. No interest if filed on time. Late filing on 1 Oct 2025: surcharge 25 % + interest 12 % p.a. from 1 June 2024 until payment.
6. Penalties, Interest and Compromise
| Violation | Surcharge | Interest | Compromise penalty (RMO 7-2015) |
|---|---|---|---|
| Failure to file return | 25 % | Annual 12 % simple | ₱10 k–₱50 k based on unpaid tax |
| Willful neglect/fraud | 50 % | 12 % | ₱50 k–₱100 k |
| Erroneous return (deficiency) | — | 12 % | ₱5 k–₱25 k |
Interest is simple interest, not compounded, and computed on the basic tax exclusive of surcharge.
7. Prescription Nuances for Long-Outstanding Estates
- No return ever filed → no assessment period; lien subsists perpetually until paid or property is sold by BIR (Sec. 222[c]).
- Return filed but false/fraudulent → 10 years from discovery to assess.
- Return duly filed → 3 years to assess (plus 5 years to collect).
Because most long-outstanding estates never filed, the third scenario seldom applies; heirs often discover the lien only when they try to sell or mortgage property decades later. The amnesty provides the clean exit.
8. Jurisprudential Highlights
- Dizon v. CIR (G.R. 140944, 27 Apr 2007) – Estate tax is a single transfer tax on the privilege of transmitting property; heirs are subsidiarily liable.
- Marcos II v. CA (G.R. 130371, 31 Aug 2006) – Assessment not barred because no return was filed; estate lien survives.
- Uy v. BIR (CTA EB 1771, 2021) – Formal assessment must still be served before collection, even decades after death.
- Heirs of Malate v. BIR (CTA Case 9684, 2023) – Estate tax installment plan allowed despite pendency of heirship suit.
9. Practical Compliance Road-Map for Heirs & Practitioners
- Asset inventory & valuation: use date-of-death values; verify BIR zonal schedules in effect then (archived RRs).
- Trace deductions: gather receipts, doctors’ certifications, notarized debts, property titles for vanishing-deduction claims.
- Run parallel computations: (a) regular regime, (b) amnesty regime. Pick the lower total outlay.
- Prepare settlement deeds: extrajudicial if no will and no minors; judicial settlement if controversy exists.
- Secure Tax Identification Number (TIN) for the estate (if not yet assigned).
- File ETAR/BIR Form 1801 or ETAR-Amnesty with all attachments.
- Pay via AAB, G-Cash BIR e-Pay, or LandBank’s Link.Biz. For amnesty, obtain BIR Form 0605 for installment balance.
- Request Certificate Authorizing Registration (CAR) or eCAR; present to Registry/LTO/SEC for transfer.
- Apply for local transfer taxes (1/2 of 1 % provincial, 75 % of that in LGUs which follow the Local Government Code).
- File Notice of Death & CADEVI with local Assessor to update tax declaration in heir’s names.
10. Common Pitfalls in Long-Outstanding Estates
| Pitfall | Consequence | Mitigation |
|---|---|---|
| Using current FMV instead of date-of-death value | Over-valuation → higher tax | Retrieve vintage zonal schedules from RDO or BIR website archives. |
| Ignoring bank deposits frozen under Sec. 97 NIRC | BIR refuses CAR issuance | Secure BIR clearance (Form 1904) before withdrawal. |
| Failure to include non-resident real property of Filipino decedent | Deficiency assessment later | Claim foreign tax credit under Sec. 86 (1)(c). |
| Overstating deductions without substantiation | 50 % fraud surcharge | Keep notarized documents; book debts in FS if creditor is related party. |
| Missing the 14 Jun 2025 amnesty deadline | Reverts to regular regime with full penalties | Lodge ETAR-EA well before deadline; pay partial via installment if needed. |
11. Conclusion
For estates that have lingered unresolved—whether from family disputes, title defects, or simple neglect—the choice is now stark:
Settle under the regular rules and face decades of accrued interest and surcharges; or take advantage of the Estate Tax Amnesty’s low 6 % rate (with a statutory sunset on 14 June 2025) and obtain a clean title.
Because prescription seldom runs against an estate that never filed a return, ignoring the problem is no longer viable. Practitioners should inventory assets, reconstruct valuations, and run side-by-side computations now to decide whether the amnesty or the regular regime yields the best outcome. In most cases—especially those dating before 2018—the amnesty produces dramatic savings and, critically, wipes out civil, criminal, and administrative exposure.
Settlement, therefore, is not merely a fiscal obligation; it is the gateway to marketable titles, unlocked liquidity, and closure for the heirs.
— Prepared for Filipino lawyers, accountants, and estate administrators, April 29 2025