Executive Summary

Estate tax in the Philippines is a one-time tax on the transfer of a decedent’s estate at death. It is imposed per death, not per property, and not per heir. However, the same property can be exposed to estate tax more than once if it passes through successive deaths (e.g., parent dies, then an heir dies before distribution)—with relief via the vanishing deduction. Inter vivos transfers are not subject to estate tax but may be subject to donor’s tax. After settlement, later sales by heirs are outside estate tax and may trigger capital gains or other income taxes depending on the asset.

What Triggers Estate Tax

Taxable event: The death of a person (the decedent). The obligation attaches to the estate, not to the heirs personally (although heirs can become liable up to the value of what they receive).
Scope of property:
- Resident citizens: worldwide assets.
- Nonresident citizens/resident aliens: generally worldwide if resident; check specific status.
- Nonresident aliens: Philippine-situs property; special reciprocity rules may exempt certain intangibles if the decedent’s country grants a similar exemption to Filipinos.
Who pays: The executor/administrator or, if none, the heirs, from estate assets.

Is It Paid Once or Multiple Times?

Once per decedent: For a given death, there is one estate tax computation on the net estate. Payment covers all properties included in that decedent’s gross estate.
Successive deaths: If an heir dies before receiving or after having received inherited property and transfers it by death to the next beneficiary, the property enters the successor’s estate and can face another estate tax.
- Mitigation: The vanishing deduction reduces the tax on property previously subjected to estate or donor’s tax within five (5) years prior to the current decedent’s death (see below).

Core Computation Framework (TRAIN-era structure)

Gross Estate
- Exclusive property of the decedent.
- Conjugal/community property share: Include only the decedent’s net share after first determining the property regime (absolute community, conjugal partnership, or separation of property). The surviving spouse’s share is excluded.
- Includible transfers: Transfers in contemplation of death, revocable transfers, certain life insurance proceeds where the estate is the beneficiary or the proceeds are receivable under policies with incidents of ownership retained, accrued income at death if required, etc.
Deductions
- Standard deduction: ₱5,000,000 (flat; no substantiation beyond death certificate and proof of relationship/identity and return).
- Family home: Up to ₱10,000,000 of the family home’s fair market value, provided it is the decedent’s family home and forms part of the gross estate.
- Claims against the estate and unpaid mortgages: Valid and duly substantiated obligations existing at death.
- Losses during settlement: Casualty/theft losses not compensated by insurance and incurred within the settlement period under statutory conditions.
- Transfers for public use: Qualifying bequests/donations to the government.
- Vanishing deduction (Property Previously Taxed): For property received by the decedent by inheritance or donation within 5 years before death and included in the current gross estate, a percentage deduction is allowed (typical schedule):
  - Within 1 year: 100% of the property’s net value carried over
  - >1 to 2 years: 80%
  - >2 to 3 years: 60%
  - >3 to 4 years: 40%
  - >4 to 5 years: 20% (Applied after considering any mortgage or lien and subject to interaction rules with other deductions.)
- Share of the surviving spouse: Deduct the surviving spouse’s net share in the conjugal/community property after allowable liabilities.
- Others: Certain medical or funeral itemized deductions have been streamlined/removed in favor of the larger standard deduction under TRAIN; check current rules for any transitional allowances.
Tax Rate
- Flat 6% applied to the net estate (after deductions).
Interest and Surcharges
- Interest accrues from the time of taking/late payment, and surcharges/penalties may apply for late filing or underpayment.

Filing, Payment, and Extensions

When to file: Within one (1) year from death (statutory due date).
Where: The Revenue District Office (RDO) where the decedent was domiciled at death, or where the executor/administrator is registered if different, consistent with BIR rules.
Extensions and Installments:
- Extension to file may be granted for meritorious reasons.
- Extension to pay / installment payment may be authorized if payment on time would impose undue hardship:
  - Up to 2 years if the estate is settled extrajudicially.
  - Up to 5 years if settled judicially.
- Extensions are discretionary, require security (bond) in practice, and may carry interest.
Bank withdrawals: Banks may allow withdrawals from the decedent’s deposits subject to final withholding (often aligned with the 6% estate tax) credited against the estate tax due, and subject to documentary requirements. Banks also commonly require BIR authorization or interim compliance to release funds.

Documentation and Clearances

Estate Tax Return (ETR) with required schedules and attachments.
Proof of death (death certificate), identities of heirs/executor, and proof of relationship where needed.
Title and valuation documents:
- Real property: Latest tax declaration, zonal value, assessor’s FMV, and appraisal if used.
- Personal property: Bank certifications, stock certificates/certifications, vehicle OR/CR, business interests’ valuation, etc.
Debts/claims evidence: Loan agreements, statements of account, notarized certifications, proof of consideration, etc.
BIR assessment/approval: Issuance of Electronic Certificate Authorizing Registration (eCAR/CAR) per asset class is required to transfer title/registration (e.g., TCT/CCT, shares, vehicles).

How Successive Transfers Are Handled

Example: A father dies in 2023 leaving a condo to Daughter A. Before the estate is settled and CAR issued, Daughter A dies in 2025.

Father’s estate: Condo is part of his gross estate; estate tax #1 is computed on his net estate.
Daughter A’s estate: Her inheritance rights (or the condo if already transmitted) become part of her gross estate; estate tax #2 arises.
Relief: If Daughter A received the property within five years, her estate may claim the vanishing deduction on that condo, reducing estate tax #2.

Key takeaways:

Estate tax is not paid “every year,” nor “every time the property is used.”
It applies each time a person dies leaving taxable assets—even if it is the same property moving across generations.

Inter Vivos vs Mortis Causa (Donor’s Tax vs Estate Tax)

Donor’s tax (6%) applies to lifetime gifts. Strategic gifting can reduce the estate base but triggers donor’s tax at the time of gift (subject to exemptions such as donations to accredited donees/government for public use).
Estate tax (6%) applies at death.
No double taxation on the same transfer: A property transferred by donation during life is generally not included in the estate (subject to claw-back rules for certain transfers in contemplation of death or with retained powers/incidents). Conversely, property included at death is not subject to donor’s tax.

Common Inclusion and Valuation Issues

Life insurance:
- Included if the proceeds are receivable by the estate or the decedent retained incidents of ownership.
- Excluded if irrevocably designated to a beneficiary and no incidents of ownership remain.
Business interests/shares:
- Closely held shares: Value by net asset value/appraisal or as prescribed.
- Listed shares: Closing price nearest the date of death, subject to rules.
Real property: Higher of zonal value or assessor’s FMV on the date of death (or specific valuation date rules). Independent appraisal may support deductions or dispute assessments.
Debts to related parties: Require strict substantiation to be deductible.

Procedural Roadmap

Inventory & Valuation: Identify all assets and liabilities; determine property regime; establish FMVs.
Compute Net Estate: Apply allowable deductions and the surviving spouse’s share.
Compute Estate Tax: Apply 6% rate; consider vanishing deduction if available.
File ETR & Pay/Seek Extension: File within 1 year; request extension/installments if warranted.
Secure eCAR/CAR: One per asset class; necessary for title transfer (TCT/CCT), stock transfer, vehicle re-registration, etc.
Distribute to Heirs: Judicial (testate/intestate) or extrajudicial settlement; update titles/registrations.

Selected Practical Questions

Q: If an heir sells inherited real property after settlement, is estate tax due again? No. Estate tax applied once at the decedent’s death. A sale by the heir may be subject to capital gains tax (for real property treated as capital asset) or regular income tax/VAT (if an ordinary asset), plus documentary stamp tax and local transfer taxes.

Q: What if there is no cash to pay the estate tax? Apply for extension and installments, consider partial asset sales, or use bank withdrawals under withholding rules to fund the tax. Posting bond or lien arrangements may be required.

Q: Do all heirs file separate estate tax returns? No. The estate files one return through the executor/administrator (or any heir by agreement), covering all assets. Heirs may sign waivers/consents as needed.

Q: Is property of the surviving spouse taxed? Only the decedent’s net share in conjugal/community property enters the gross estate. The surviving spouse’s share is excluded.

Q: Our family home is worth more than ₱10M—how much is deductible? Up to ₱10,000,000 only; any excess remains in the estate base (subject to other deductions).

Compliance Pitfalls to Avoid

Missing the 1-year deadline without approved extension—triggers penalties/interest and can delay transfers.
Skipping the vanishing deduction where eligible—foregoes substantial relief in back-to-back deaths.
Poor substantiation of debts/valuations—can lead to disallowance or higher assessments.
Neglecting the eCAR/CAR workflow—titles and registrations cannot transfer without it.
Misclassifying assets (capital vs ordinary) when planning post-settlement sales.

Bottom Line

Estate tax in the Philippines is paid once per death on the decedent’s net estate at a 6% rate (TRAIN-era), with standard and family home deductions and other reliefs.
The same property can encounter estate tax again in a later estate if it passes through another death, but the vanishing deduction reduces duplication where deaths are within five years.
Timely filing, careful valuation, correct deduction claims, and proper documentation (leading to eCAR/CAR) are essential to a clean, efficient transfer of wealth.