Introduction

In the Philippines, the sale of inherited property by heirs is governed primarily by the Civil Code of the Philippines (Republic Act No. 386), the Tax Code (National Internal Revenue Code of 1997, as amended), and relevant administrative regulations from the Bureau of Internal Revenue (BIR), the Registry of Deeds, and local government units. Inheritance occurs upon the death of the property owner (decedent), transferring rights to heirs either through intestate succession (no will) or testate succession (with a will). Selling such property requires establishing clear title, settling the estate, complying with fiscal obligations, and executing proper documentation. This process ensures the transfer is legal, free from disputes, and protects buyers from future claims.

Failure to adhere to these requirements can result in invalid sales, tax penalties, or litigation. This article comprehensively outlines the legal, procedural, and documentary requirements, including potential pitfalls and special scenarios.

Establishing Heirship and Ownership

Before selling inherited property, heirs must confirm their status and the property's inclusion in the estate.

Identification of Heirs

Intestate Succession: Under Articles 974-1014 of the Civil Code, if the decedent dies without a will, heirs are determined by blood relation or marriage. Compulsory heirs include legitimate children (or descendants), legitimate spouse, and legitimate parents (or ascendants). Illegitimate children receive half the share of legitimate ones. Siblings and other collaterals inherit only if there are no descendants, ascendants, or spouse.
Testate Succession: If a will exists, it must specify devisees or legatees. However, compulsory heirs cannot be entirely disinherited except for valid grounds (e.g., attempted murder of the testator under Article 1032).
Proof of Heirship: Heirs must provide birth certificates, marriage certificates, death certificate of the decedent, and affidavits of self-adjudication if sole heir. In disputes, a court declaration via special proceedings may be necessary.

Inventory of the Estate

Heirs must list all assets, including real property (land, buildings), using the decedent's titles (e.g., Original Certificate of Title or Transfer Certificate of Title). Properties under the Torrens system (Presidential Decree No. 1529) require verification with the Registry of Deeds to check for annotations like liens or adverse claims.

Settlement of the Estate

The estate must be settled to partition properties among heirs, as undivided estates cannot be sold without co-heirs' consent.

Extrajudicial Settlement

Applicability: Under Section 1, Rule 74 of the Rules of Court, this is allowed if there is no will, no debts, and all heirs agree. It applies to estates below a certain value or where heirs waive bond requirements.
Procedure:
- Execute a Deed of Extrajudicial Settlement of Estate (DESE) or Partition, notarized and published once a week for three consecutive weeks in a newspaper of general circulation.
- If the estate exceeds P50,000 (gross value), post a bond equivalent to the property's value.
- File with the Registry of Deeds for annotation.
Timeframe: Settlement must occur within two years from death to avoid summary settlement proceedings.

Judicial Settlement

When Required: If there is a will (requiring probate under Rule 75), outstanding debts, minor heirs, or disputes among heirs.
Procedure:
- File a petition for probate (testate) or intestate proceedings in the Regional Trial Court of the decedent's residence.
- Appoint an administrator or executor to manage the estate, pay debts, and distribute assets.
- Court issues a decree of partition after settling claims.
Special Proceedings: For estates with debts, creditors must file claims within the period set by the court (Rule 86).

Self-Adjudication

If there is a sole heir, an Affidavit of Self-Adjudication suffices, similar to DESE but without partition.

Payment of Taxes and Obtaining Clearances

Tax compliance is crucial, as unpaid taxes can void the sale or lead to penalties.

Estate Tax

Obligation: Under Section 84 of the Tax Code, estate tax (6% flat rate on net estate as per TRAIN Law, Republic Act No. 10963) must be paid within one year from death (extendable to two years).
Filing: Executor/administrator or heirs file BIR Form 1801 with the Revenue District Office (RDO) where the decedent resided.
Deductions: Include funeral expenses (up to P200,000), judicial expenses, standard deduction (P5 million), and family home (up to P10 million).
Certificate Authorizing Registration (CAR): Issued by BIR after payment, required for title transfer.

Other Taxes on Sale

Capital Gains Tax (CGT): 6% on the higher of selling price or zonal value/fair market value, paid by sellers (heirs).
Documentary Stamp Tax (DST): 1.5% on the selling price or zonal value, whichever is higher.
Donor's Tax: Not applicable unless the transfer is disguised as a donation.
Local Transfer Tax: Up to 0.75% of the selling price, paid to the local treasurer's office.
Withholding Tax: If the buyer is a corporation or non-resident, applicable on CGT.

Clearances

BIR Clearance: Electronic Certificate Authorizing Registration (eCAR) for the sale.
Local Government Clearance: Certification from the assessor’s office that real property taxes are paid.
Other: If agricultural land, DAR clearance under Comprehensive Agrarian Reform Law (Republic Act No. 6657) to ensure no tenancy issues.

Execution of the Deed of Sale

Once settled and taxes paid, heirs can sell.

Deed of Absolute Sale

Content: Must include property description (technical from title), selling price, terms, and signatures of all selling heirs (or authorized representatives via Special Power of Attorney).
Notarization: Required for validity and recording.
Consent: All co-heirs must consent if property is undivided; otherwise, sell only pro-indiviso shares.

Buyer's Due Diligence

Verify title, check for encumbrances, and ensure heirs' authority.

Registration and Transfer of Title

Process: Submit Deed of Sale, CAR, tax receipts, and original title to the Registry of Deeds.
Fees: Registration fees based on property value.
Output: New Transfer Certificate of Title in buyer's name.
Timeframe: Typically 1-3 months, but delays possible.

Special Considerations

Minor Heirs or Incapacitated Persons

Court approval via guardianship proceedings (Rule 93-97) required for sales involving minors' shares. Guardian ad litem may be appointed.

Conjugal or Community Property

If the decedent was married, the surviving spouse owns half. Settlement must account for conjugal partnership (Articles 106-130, Family Code).

Agricultural Lands

Subject to retention limits (5 hectares per landowner under RA 6657). Sale requires DAR approval if to non-qualified buyers.

Foreign Heirs or Buyers

Foreigners cannot own land (Constitution, Article XII), but can inherit if Filipino at death. Sales to foreigners invalid unless for condos (up to 40% foreign ownership).

Disputed Estates

Lis pendens annotation if ongoing litigation; buyers assume risk.

Prescription and Adverse Possession

Heirs have 10 years to claim (ordinary prescription) or 30 years (extraordinary) against third parties.

COVID-19 and Recent Amendments

Extensions for estate tax filing under Bayanihan Acts (now lapsed), but TRAIN Law simplifications remain.

Potential Pitfalls

Double sales if not all heirs sign.
Tax evasion leading to BIR audits.
Forged documents resulting in criminal liability (falsification under Revised Penal Code).

Conclusion

Selling inherited property in the Philippines demands meticulous compliance with civil, tax, and administrative laws to ensure a smooth, dispute-free transfer. Heirs should consult lawyers or notaries for guidance, as processes vary by location and estate complexity. Proper adherence not only facilitates the sale but also preserves family harmony and legal integrity. For specific cases, reference updated BIR issuances or court rulings, as laws evolve through jurisprudence.