How to Compute Estate Tax in the Philippines (A Practical Legal Guide)

Scope & currency. This guide summarizes the rules on Philippine estate taxation under the National Internal Revenue Code (NIRC), as amended by the TRAIN Law (RA 10963) and its implementing regulations. It is written for lay readers and practitioners who want a single, practical reference on what is taxed, who pays, what to deduct, how to compute, file, and pay, with worked examples and checklists.

1) What is the estate tax?

The estate tax is a transfer tax imposed on the right of a decedent to transmit property at death. It is a tax on the privilege of transfer, not on the property itself. Liability arises at the moment of death; valuation and deductions are determined as of that moment.

Taxpayer: the estate of the decedent (represented by the executor/administrator or the heirs if none).
When due: Within one (1) year from death (extensions may be granted by the BIR for meritorious cases).
Form: BIR Form 1801 (Estate Tax Return), filed with the Revenue District Office (RDO) having jurisdiction over the decedent’s domicile at death (or where the property is located if nonresident).

2) Who is taxed, and on what property?

A. Decedents who are Philippine citizens or residents (including resident aliens) Tax base: Worldwide gross estate (all properties wherever situated), less allowable deductions.

B. Decedents who are nonresident aliens Tax base: Gross estate situated in the Philippines only, less allowable deductions applicable to nonresident aliens (see §5).

Tip: “Residence” is a factual concept (physical presence + intent to remain). “Citizen vs alien” refers to nationality. Status is determined at death.

3) What constitutes the Gross Estate?

The gross estate includes, as of the date of death:

Real and personal property (tangible and intangible), wherever located (worldwide for citizens/residents; PH-situs for nonresident aliens).
- Real property: FMV is the higher of (a) BIR zonal value or (b) fair market value per local assessor.
- Listed shares: the average of the highest and lowest trading prices on the valuation date (or nearest trading day).
- Unlisted shares: generally book value for common; par/redemption value for preferred (subject to special rules for closely held corporations).
Transfers in contemplation of death, revocable transfers, and transfers where the decedent retained certain powers.
Proceeds of life insurance if (a) payable to the estate/executor/administrator or (b) payable to any beneficiary but the designation is revocable.
- Excluded: life insurance payable to a irrevocably designated beneficiary.
Certain community/conjugal properties (see §4C for splitting with the surviving spouse).

Valuation moment: Always the time of death. Post-death appreciation or depreciation is irrelevant (except where the law or regulations provide specific relief).

4) How do you go from Gross Estate to Net Estate?

A. The 6% Flat Rate

The estate tax is 6% of the Net Estate. The rate is flat—there is no longer a graduated bracket schedule.

B. Allowable Deductions (citizens/residents)

Under TRAIN, the deductions are streamlined:

Standard deduction: ₱5,000,000 (no substantiation of actual expenses required).
Family home deduction: up to ₱10,000,000 of the family home’s value (any excess value remains in the estate).
- “Family home” means the dwelling where the family resides and the land it stands on; it must form part of the property relations of the spouses/family.
Vanishing deduction (property previously taxed): relief for property received by the decedent from a prior decedent within five (5) years and subjected to Philippine estate/donor’s tax, computed on a sliding percentage that “vanishes” over time.
Transfers for public use: property transferred or bequeathed to the Government for public purposes.
Share of the surviving spouse (SSS deduction): see §4C.

Removed by TRAIN: itemized funeral, medical, judicial/administration expenses, and most claims against the estate/mortgages are no longer deductible for deaths covered by TRAIN. Plan liquidations accordingly.

C. Splitting the Property Relations: Share of Surviving Spouse

For married decedents under absolute community (ACP) or conjugal partnership of gains (CPG):

Identify community/conjugal vs exclusive property.
Compute net community/conjugal estate (gross community assets minus community obligations).
Split 50/50 between decedent and surviving spouse; only the decedent’s share enters the gross estate.
Add decedent’s exclusive properties to reach the gross estate.
Apply deductions (4B). The “Share of Surviving Spouse” is the amount legally belonging to the spouse after the split and is deducted to avoid taxing property that is not the decedent’s.

Proof matters: Keep marriage contract, property titles, loan documents, and ledgers that trace whether an asset is conjugal/community or exclusive.

5) Special rules for Nonresident Aliens

For a nonresident alien (NRA) decedent:

Tax base: only Philippine-situated property (e.g., Philippine real property; shares in Philippine corporations; tangible property located in the Philippines; specific rules apply to bonds, bank deposits, etc.).
Deductions: limited set aligned with TRAIN reforms. In practice:
- Standard deduction (a smaller fixed amount under TRAIN),
- Vanishing deduction (if applicable), and
- Transfers for public use. Some deductions are allowable only in proportion to the ratio of PH-situs gross estate / worldwide gross estate if the nature of the deduction requires such apportionment.
No “family home” deduction unless the asset qualifies as such under Philippine law and forms part of PH property relations (rare for NRAs).

Because the NRA rule set is narrower and often proportional, document the decedent’s worldwide estate to substantiate any apportionment.

6) Life insurance, retirement, deposits, and common edge cases

Life insurance:
- Included if payable to the estate or to a revocable beneficiary.
- Excluded if irrevocably designated to a beneficiary other than the estate. Keep the policy, beneficiary designations, and any riders.
Retirement benefits: properly structured statutory retirement benefits may be exempt/excluded; review the plan’s enabling law and tax rulings.
Bank deposits: post-death withdrawals are generally frozen until Electronic Certificate Authorizing Registration (eCAR) or bank clearance; statutory final withholding tax on interest may apply independently of estate tax.
Gifts made within death planning: transfers in contemplation of death or revocable arrangements are typically pulled back into the estate.
Co-ownership & joint accounts: absent contrary proof, presume equal shares and include the decedent’s share.

7) The step-by-step Computation Flow

Profile the decedent (citizen/resident vs nonresident alien; marital property regime).
Inventory all assets as of death (with FMV substantiation).
Classify assets: community/conjugal vs exclusive; PH-situs vs foreign.
Compute the gross estate attributable to the decedent (after the spouse’s share split).
Apply allowable deductions (standard, family home up to ₱10M, vanishing, public-use transfer, spouse’s share).
Net Estate = Gross – Deductions.
Estate Tax = 6% × Net Estate.

8) Worked Examples (numbers rounded; follow the sequence carefully)

Example 1: Resident Filipino, married under ACP

Assets at death (all community except the watch):
- Family home (house & lot): ₱14,000,000 (FMV basis)
- Condo unit (rental): ₱8,000,000
- Bank deposits: ₱2,000,000
- Car: ₱1,000,000
- Decedent’s exclusive luxury watch: ₱1,000,000
Liabilities: none relevant under TRAIN (claims not deductible).
Insurance: ₱3,000,000 payable to spouse with irrevocable designation (→ excluded).
No prior-taxed property.

Step A — Split property relations

Community assets (home 14 + condo 8 + bank 2 + car 1) = ₱25,000,000
Exclusive (decedent) = ₱1,000,000
Community 50% (decedent’s share) = ₱12,500,000
Gross estate (decedent) = ₱12,500,000 (community share) + ₱1,000,000 (exclusive) = ₱13,500,000

Step B — Deductions

Standard deduction: ₱5,000,000
Family home: up to ₱10,000,000; home is ₱14,000,000. Deduct ₱10,000,000 (excess ₱4,000,000 remains in gross but no added deduction).
Vanishing deduction: ₱0
Public use: ₱0
Share of surviving spouse: Already accounted for by splitting; no separate numeric entry beyond the split itself.

Note: For form purposes, some practitioners present the spouse’s share as a line deduction after first listing the entire community. Computationally the outcome is identical so long as you do not double-deduct.

Step C — Net & tax

Net estate = ₱13,500,000 − ₱5,000,000 − ₱10,000,000 = (₱1,500,000) → floor at zero (no negative tax base).
Estate tax = 6% × ₱0 = ₱0

Result: Despite substantial assets, the standard + family home deductions can fully shelter smaller estates.

Example 2: Resident Filipino with prior-taxed property (vanishing deduction)

Decedent’s share of gross estate (after spouse split): ₱20,000,000
- Includes a farm worth ₱5,000,000 inherited 3 years ago from a parent’s estate that paid Philippine estate tax.
Deductions:
- Standard: ₱5,000,000
- Family home: none
- Vanishing deduction basis: the net value of the farm that is still in the estate; assume ₱5,000,000 net.
- Percentage (received within more than 2 but not more than 3 years): 60% (illustrative of the sliding scale).
- Vanishing deduction: ₱3,000,000 (₱5,000,000 × 60%)
Net estate = 20,000,000 − 5,000,000 − 3,000,000 = ₱12,000,000
Estate tax = 6% × 12,000,000 = ₱720,000

Practice pointer: Compute the vanishing deduction carefully—its base can be reduced by encumbrances or previous deductions connected with the same property.

Example 3: Nonresident Alien with Philippine assets

PH-situs property at death:
- Condo in Taguig: ₱12,000,000
- Shares in a PH corporation (unlisted), book value: ₱3,000,000
- PH gross estate = ₱15,000,000
Deductions (illustrative under TRAIN framework):
- Standard deduction (smaller NRA amount under TRAIN) — apply as allowed;
- Vanishing deduction if qualifying;
- Public-use transfers, if any. Assume only the NRA standard deduction applies (input the then-current fixed amount), with no family home and no vanishing deduction.
Net estate = ₱15,000,000 − [NRA standard deduction]
Estate tax = 6% × Net estate.

For NRAs, some deductions may be proportional to PH-situs over worldwide gross estate. Keep documentation of the worldwide estate to avoid disallowance.

9) Filing, payment, extensions, and penalties

Deadline: Within 1 year from death.
Extensions: The BIR may grant reasonable extensions to file and/or pay upon written request showing meritorious cause (e.g., difficulty in locating assets or securing documents).
- Installments: Payment in installments can be allowed if the estate lacks sufficient cash, subject to conditions; interest may accrue on unpaid balances.
Penalties (general concepts):
- Surcharge (e.g., 25% for failure to file/pay; 50% for willful neglect or false return).
- Interest on deficiency/delinquency at the statutory rate (computed per NIRC rules, which track prevailing legal interest benchmarks).
Where to file/pay: RDO of domicile (or where property is located for NRAs), Authorized Agent Banks, or other BIR-prescribed channels (including ePayment options when available).

10) Documentary checklist (practical)

Death certificate (PSA).
BIR TIN of the Estate (apply if none).
BIR Form 1801 (Estate Tax Return).
Proof of valuation at death:
- Real property: BIR zonal value printout, Tax Declaration (assessor’s FMV), latest real property tax receipts; if specialized property, an appraisal report helps.
- Securities: broker’s certification (listed), audited FS for book value (unlisted), corporate secretary certificates.
- Bank accounts: bank certifications of balances as of date of death.
Property titles & instruments (TCTs/CTCs, stock certificates, deeds, car OR/CR).
Marital regime evidence (marriage certificate; pre-nup if any).
Insurance policy(ies) and beneficiary designations.
Evidence for vanishing deduction (prior estate/donor’s tax payments, dates of prior death/gift, values).
Proof of public-use transfers (if any).
SPA/letters testamentary or administration; IDs of heirs/executor.

Keep everything organized—the eCAR (Electronic Certificate Authorizing Registration) needed to transfer titles will not be released until the BIR completes its audit/verification.

11) Practical planning notes

Family home documentation: Make sure the property is properly titled and actually used as the family home; only ₱10M is deductible. Consider how any excess value will affect liquidity for taxes.
Liquidity planning: Since funeral/medical/administration costs are no longer deductible, heirs should plan for cash to pay tax (e.g., maintaining some liquid assets or insurance payable to an irrevocably designated beneficiary to keep proceeds out of the estate).
Title clean-up early: Unrecorded liens, incomplete corporate registers, or outdated tax declarations delay eCAR release.
Cross-border estates: For citizens/residents with foreign assets (or NRAs with PH assets), watch for double taxation and consider treaties or foreign credits, where applicable.

12) Quick reference: computation template

I. Determine decedent profile (citizen/resident vs NRA) and marital regime.
II. List assets (with FMV at death); classify as community/conjugal vs exclusive; PH-situs vs foreign.
III. Compute decedent’s gross estate:
    A. For married: split community/conjugal net assets 50/50; add decedent’s exclusive assets.
    B. Add includible items (revocable transfers, taxable insurance, etc.).
IV. Deduct (TRAIN regime):
    1. Standard deduction (₱5,000,000 for citizens/residents; special rule for NRAs).
    2. Family home (up to ₱10,000,000).
    3. Vanishing deduction (if applicable).
    4. Transfers for public use.
    5. Share of surviving spouse (ensure no double counting).
V. Net Estate = Gross – Deductions
VI. Estate Tax = 6% × Net Estate
VII. File BIR Form 1801 and pay within 1 year from death (seek extension/installment if needed).
VIII. Secure eCAR and retitle assets.

13) Frequently asked clarifications

Are bank deposits automatically part of the gross estate? Yes, balances at death are included (net of ownership share). Interest after death is not part of the estate tax base but has its own income tax regime.
Is an irrevocable insurance payout taxable in the estate? Generally no; include only if the designation is revocable or the estate is the payee.
Can we deduct hospital and funeral bills? Not under the TRAIN regime for covered deaths; rely on the ₱5M standard deduction instead.
What if the estate cannot pay in full? Apply for installment and/or extension with substantiation; interest may apply.
Do we still compute donor’s/estate tax on the same property twice? The vanishing deduction mitigates double taxation when property was taxed in a prior transfer within five years.

Final note

Estate tax outcomes turn on status at death, asset classification/valuation, and documentation. If your facts vary (foreign elements, complex shareholdings, trusts, usufructs, or contested marital regimes), adapt the framework above and keep a strong paper trail—computation follows the documents.