Estate Tax Computation & Responsibility in the Philippines
(All references are to the National Internal Revenue Code of 1997, as amended, and related issuances. Current through 16 June 2025.)
1. Concept & Legal Basis
Estate tax is a tax on the privilege of transmitting property at death, levied on the net estate of every decedent (resident or non-resident) under §§ 84–97, NIRC. The estate itself becomes a separate juridical entity for income- and estate-tax purposes once the decedent dies.
2. Persons Primarily Liable
| Role | Statutory Ground | Liability |
|---|---|---|
| Executor / Administrator | § 90 (NIRC); Rule 73 §1, Rules of Court | Principal duty to file the Estate Tax Return (ETR) and pay the tax. |
| Heirs, devisees, legatees | § 97 (NIRC) | Solidarily liable to the extent of assets they receive if no executor/administrator is appointed or if the estate is distributed without full payment. |
| Estate (as a juridical person) | § 86 | Treated as taxpayer; must secure its own TIN (BIR Form 1904). |
Practical tip: File Form 1801 in the Revenue District Office (RDO) where the decedent was domiciled at death; if non-resident, file where the executor is domiciled or where the largest Philippine asset is located.
3. Scope of the Tax
| Decedent | Property Included |
|---|---|
| Resident citizen / resident alien | Worldwide assets. |
| Non-resident citizen | Philippine-situs property only (rare; usually covered by foreign estate tax where he resides). |
| Non-resident alien | Philippine-situs property only, less intangible assets if the reciprocity rule in § 86(B) applies. |
Property deemed situated in the Philippines: Real property located here; tangible personal property physically here; and intangibles issued by Philippine persons (e.g., shares in a domestic corporation, peso bank deposits).
4. The TRAIN-era Computation (in force since 1 Jan 2018)
Current Rate: 6 % flat on the net estate, replacing the pre-2018 graduated 5 %–20 % schedule.
Step 1 – Ascertain the Gross Estate
Add the FMV/“zonal value” of all includible property plus the pro forma inclusions (transfers in contemplation of death, revocable transfers, property under a general power of appointment, life-insurance proceeds with revocable beneficiary, etc.).
Step 2 – Deduct Allowable Deductions
| Deduction | Amount / Limit | Notes |
|---|---|---|
| Standard deduction | ₱ 5 million (resident) • ₱ 500 000 (non-resident alien) | No substantiation needed. |
| Family Home | Up to ₱ 10 million FMV | Excess is part of gross estate. |
| Judicial/administrative expenses | Actual, reasonable | Probate fees, executor’s bond, attorney’s fees, appraisal costs. |
| Claims against the estate | Valid, enforceable debts incurred in good faith | Must be duly notarised if incurred ≥ 3 yrs before death (RR 12-2018). |
| Unpaid mortgages/indebtedness | For encumbered property | Deductible only if the corresponding asset is included. |
| Claims of decedent vs. insolvent persons | Actual worth. | |
| Transfers for public use | Donations to the Philippine Government or accredited NGOs. | |
| Net share of surviving spouse | ½ of conjugal/CPG or relative community assets after obligations. | |
| Retirement / Separation benefits | Amount received by heirs under RA 4917, GSIS, SSS. |
Not deductible anymore (TRAIN): funeral expenses, medical expenses for last illness.
Step 3 – Compute the Net Taxable Estate
Gross Estate – Total Deductions = Net Estate
Step 4 – Apply the 6 % rate
Estate Tax Due = Net Estate × 6 %
(Low-net estates up to ₱ 5 million may result in zero tax because of the standard deduction.)
Step 5 – Tax Credits
Foreign estate tax paid may be credited pro rata (§ 86(C)).
5. Filing, Payment & Extensions
| Item | Rule |
|---|---|
| Deadline | Within one (1) year from decedent’s death (§ 90). |
| BIR Form | 1801 (Jan 2018 version) or e-ETR via eFPS. |
| Payment options | Cash, manager’s check, or electronic payment in full or in installment if Commissioner grants extension (≤ 2 yrs extrajudicial; ≤ 5 yrs judicial) & posts a surety bond (§ 91). |
| Withdrawal of bank deposits | Permitted before settlement subject to a 6 % final withholding on the amount withdrawn (amended § 97). Bank must notify BIR within 30 days. |
| Certificates | eCAR (Certificate Authorizing Registration) is required for Registry of Deeds, LTO, corporate secretary, etc., before property can be transferred. |
6. Penalties for Non-Compliance
| Violation | Surcharge | Interest | Compromise |
|---|---|---|---|
| Late filing / payment | 25 % of basic tax (50 % if fraudulent). | 12 % p.a. (double the legal interest rate) until paid. | As per BIR “Schedule of Compromise Penalties”. |
7. Estate Tax Amnesty (Status as of 16 June 2025)
| Law | Coverage | Rate | Deadline |
|---|---|---|---|
| RA 11213 (Tax Amnesty Act) as amended by RA 11569 & RA 11956 | Estates of decedents who died on or before 31 May 2022, with or without previously issued assessments. | 6 % of net estate or ₱ 5 000 per estate, whichever is higher. | 14 June 2025 (effectively next banking day, 16 June 2025). |
File BIR Form 2118-E, pay through AAB/EGov, attach proof of settlement (e.g., Extra-Judicial Settlement, Death Certificate). The amnesty is in lieu of all penalties and results in an eCAR.
8. Practical Compliance Checklist
- Secure TIN for the Estate (BIR Form 1904).
- Inventory assets & debts; obtain certified valuations.
- Determine deductibles (document claims, mortgages, admin expenses).
- Prepare and sign ETR (Form 1801) within 1 year.
- Pay or apply for extension; if extension, post bond and observe installment schedule.
- Obtain eCARs for each real or personal property.
- Distribute estate only after tax clearance; heirs sign Deed of Adjudication/Partition.
9. Liability After Distribution
- § 97, NIRC makes heirs personally liable, pro-rata with assets received, if estate tax turns out under-paid.
- BIR may issue assessment within 3 yrs after filing of an ETR; for false/fraudulent returns, assessment may be made any time.
- Unsettled estate tax constitutes a lien enforceable against the properties transferred.
10. Recent & Pending Reforms
| Measure | Highlights | Status |
|---|---|---|
| Digital Estate Tax Return | Mandatory e-filing for estates ≥ ₱ 5 M via eFPS; real-time CAR generation. | RR 8-2024 (effective 2025). |
| Automatic TIN issuance at death (CIVIL REGISTRY-BIR link) | Death certificates auto-generate estate TIN to simplify compliance. | Pilot roll-out in NCR and Region III. |
| House Bill 7068 (“Ease of Estate Settlement Act”) | Proposes self-assessed CAR, replaces one-year filing deadline with two-year window. | Pending in Senate, 2nd Regular Session of 19th Congress. |
11. Comparative Snapshot (Pre- vs Post-TRAIN)
| Parameter | Pre-1 Jan 2018 | Now |
|---|---|---|
| Tax rates | 5 %–20 % graduated | 6 % flat |
| Standard deduction | ₱ 1 M | ₱ 5 M |
| Family home deduction | ₱ 1 M cap | ₱ 10 M |
| Funeral & medical deductions | Allowed (caps) | Removed |
| Bank withdrawals before CAR | Frozen | Allowed with 6 % WH tax |
12. Key Take-Aways
- Early inventory and documentation prevent later penalties and disputes.
- Under TRAIN, most middle-class estates are estate-tax-free (≤ ₱ 5 M net).
- Heirs remain solidarily liable until tax is settled; do not rush distribution without an eCAR.
- The extended amnesty expiring 14 June 2025 is a final window for long-unsettled estates.
- Changes continue (digital CAR, possible two-year filing), so monitor new BIR issuances.
This article is for general information only and does not constitute legal advice. For specific cases, consult a Philippine tax professional or lawyer experienced in estate settlement.