Introduction

In the Philippines, estate tax is a levy imposed by the government on the transfer of a deceased person's estate 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) effective January 1, 2018, and further refined by subsequent revenue regulations, the estate tax ensures that wealth transfers are subject to fiscal oversight. This tax applies to the net estate of Filipino citizens, resident aliens, and non-resident aliens with property in the Philippines. The computation process involves determining the gross estate, applying allowable deductions, calculating the net taxable estate, and applying the applicable tax rate. This article provides a comprehensive overview of the guidelines for estate tax computation, including definitions, inclusions, exclusions, deductions, valuation methods, tax rates, filing requirements, and penalties, all within the Philippine legal framework.

Legal Basis and Scope

The estate tax is outlined in Sections 84 to 97 of the NIRC. It is an excise tax on the right to transmit property at death, not on the property itself. The tax applies to:

Citizens and Residents: The worldwide estate of Filipino citizens and resident aliens.
Non-Resident Aliens: Only properties situated in the Philippines.

The TRAIN Law simplified the estate tax structure by introducing a flat rate and increasing deductions, aiming to reduce the tax burden and encourage compliance. Key implementing rules include Revenue Regulations (RR) No. 12-2018 and subsequent issuances from the Bureau of Internal Revenue (BIR).

Key Definitions

Decedent: The deceased person whose estate is subject to tax.
Gross Estate: The total value of all property, real or personal, tangible or intangible, owned by the decedent at the time of death.
Net Estate: Gross estate minus allowable deductions.
Executor/Administrator: The person responsible for settling the estate, who files the estate tax return.
Heirs/Beneficiaries: Persons entitled to receive the estate, including legatees and devisees.

Composition of the Gross Estate

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

1. Real Property

Land, buildings, and improvements in the Philippines (for non-residents, only Philippine-sited property).
Valuation: Based on the higher of zonal value (as determined by the BIR) or the assessed value by the local government unit (LGU). If neither applies, use the FMV from an independent appraiser.

2. Personal Property

Tangible: Vehicles, jewelry, furniture, etc.
Intangible: Shares of stock, bonds, bank deposits, receivables.
Valuation for Shares: For listed stocks, the FMV is the arithmetic mean between the highest and lowest quotation on the valuation date or nearest trading date. For unlisted stocks, use book value or adjusted net asset value.

3. Special Inclusions

Transfers in Contemplation of Death: Properties transferred within three years prior to death if motivated by impending death (presumed if within the period, rebuttable).
Revocable Transfers: Properties where the decedent retained control or income rights.
Property Passing Under Power of Appointment: If the decedent had a general power over the property.
Proceeds of Life Insurance: If the decedent retained incidents of ownership or if payable to the estate.
Retirement Benefits and Pensions: If receivable by the estate or heirs.
Claims Against Insolvent Persons: Valued at FMV.
Usufruct or Annuities: Capitalized value.

For non-resident aliens, only Philippine-sited property is included, such as shares in Philippine corporations (considered situated in the Philippines regardless of certificate location).

Exclusions from Gross Estate

Certain items are excluded:

Separate Property of Surviving Spouse: Under the conjugal partnership or absolute community regime, the decedent's share is half, excluding exclusive properties.
Properties Already Taxed: If subject to donor's tax in prior transfers.
Bequests to Government: For public purposes.
GSIS, SSS, or Similar Benefits: Exempt if from government-mandated programs.
War Damage Payments: Exempt.

Allowable Deductions

Deductions reduce the gross estate to arrive at the net taxable estate. They vary by residency status.

For Citizens and Residents

Standard Deduction: PHP 5,000,000 (fixed under TRAIN Law).
Claims Against the Estate: Debts owed by the decedent, substantiated by documents (e.g., promissory notes).
Claims Against Insolvent Persons: If included in gross estate.
Unpaid Mortgages or Taxes: On included properties.
Losses, Indebtedness, and Taxes (LIT): Casualty losses not compensated, incurred after death but before filing.
Property Previously Taxed (Vanishing Deduction): For properties received by the decedent within five years prior to death that were already taxed. Rates: 100% (within 1 year), 80% (1-2 years), 60% (2-3), 40% (3-4), 20% (4-5).
Transfers for Public Use: To government or accredited NGOs for public purposes.
Family Home: Up to PHP 10,000,000, if certified as such and occupied by the family.
Medical Expenses: Up to PHP 500,000, incurred within one year prior to death, substantiated.
Funeral Expenses: Disallowed under TRAIN Law (previously 5% of gross estate or PHP 200,000 max).
Judicial Expenses: Disallowed under TRAIN Law.

For Non-Resident Aliens

Deductions are prorated based on the ratio of Philippine gross estate to worldwide gross estate. No standard deduction, family home, or medical expenses deduction. Allowable: Claims, LIT, vanishing deduction, transfers for public use, and a portion of expenses if substantiated.

Computation of Net Taxable Estate

Net Taxable Estate = Gross Estate - (Standard Deduction + Other Allowable Deductions)

If the decedent is married, compute the conjugal gross estate first, deduct conjugal deductions, then allocate the net conjugal estate equally (unless absolute separation). Add exclusive properties and deduct exclusive deductions to get the net estate.

Estate Tax Rate and Calculation

Under the TRAIN Law, the estate tax is a flat 6% on the net estate, with no exemption threshold beyond the standard deduction. Formula:

Estate Tax Due = Net Taxable Estate × 6%

If the net estate is PHP 5,000,000 or less (after standard deduction), no tax is due, effectively creating an exemption.

For non-resident aliens, the same rate applies to the Philippine net estate.

Credits and Adjustments

Foreign Estate Tax Credit: For citizens/residents, credit for estate taxes paid to foreign countries on foreign properties, limited to the Philippine tax attributable to such properties.
Prior Transfers: Already accounted via vanishing deduction.

Filing and Payment Requirements

Who Files: Executor, administrator, or any heir if none appointed.
When: Within one year from death (extended from six months pre-TRAIN).
Where: BIR Revenue District Office (RDO) where the decedent resided, or RDO 39 for non-residents.
Form: BIR Form 1801 (Estate Tax Return), with attachments like death certificate, inventory, appraisals, deeds, etc.
Payment: Simultaneous with filing, via cash, check, or electronic means. Installment payment allowed if estate lacks liquidity, up to two years with interest.
Notice of Death: Required within two months if gross estate exceeds PHP 20,000.

Special Rules

Extrajudicial Settlement: If no will and estate < PHP 5M net, possible without court, but tax must be paid first.
Community Property Regimes: Affects division (conjugal vs. absolute community vs. separation).
Trusts and Estates: If estate administration exceeds two years, it becomes a taxable entity.
Non-Resident Decedents: Reciprocity rule for intangibles: If the foreign country grants similar exemption to Filipinos, intangibles of non-resident aliens are exempt.

Penalties for Non-Compliance

Surcharge: 25% for late filing/payment, 50% for willful neglect or fraud.
Interest: 6% per annum (post-TRAIN, reduced from 12%).
Compromise Penalties: For deficiencies.
Criminal Liabilities: For evasion, up to fines and imprisonment.

Recent Developments and Considerations

As of 2026, no major amendments have altered the core structure post-TRAIN, though BIR issuances may clarify valuations (e.g., for cryptocurrencies, treated as intangible personal property at FMV). Heirs should consult certified public accountants or lawyers for complex estates. Estate planning tools like donations inter vivos can minimize tax, but must comply with donor's tax rules.

This framework ensures equitable taxation while providing relief through deductions, promoting efficient wealth transfer in the Philippine context.