When a loved one passes away and leaves behind property, transferring that property to the rightful heirs requires paying estate tax. This is a critical step that many heirs overlook, leading to penalties and complications.
What is Estate Tax?
Under Philippine tax rules, estate tax is a tax on the privilege of the decedent to transmit his estate at death to his lawful heirs or beneficiaries. The estate tax is imposed on the net estate, which is the total value of the estate minus allowable deductions.
Currently, the net estate of every decedent, whether resident or non-resident of the Philippines, is subject to an estate tax at the rate of six percent (6%) . This means that 6% of the net value of the estate must be paid to the BIR before the property can be transferred to the heirs.
In addition to the national estate tax, local transfer taxes are levied by local government units for the transfer of real properties, with rates of up to 0.50% if the property is located in the provinces.
Important Clarification: Estate Tax Status for 2026
As of June 2026, there is no “Estate Tax Abolition Bill” currently in effect. The 6% estate tax remains the law of the land under the National Internal Revenue Code. While there have been legislative discussions and proposals regarding various tax reforms, the estate tax is still actively enforced by the Bureau of Internal Revenue (BIR).
What this means for heirs:
- Any property transfer through inheritance is still subject to the 6% estate tax
- The tax is computed based on the net estate value
- The deadline for filing and payment remains one year from the date of death
Estate Tax Amnesty: Officially Closed
This is a critical point that many heirs may not be aware of. The primary window for the Estate Tax Amnesty (which offered relief from penalties and surcharges) officially closed on June 16, 2025.
As of June 2026, there is currently no active amnesty law in effect.
What This Means for Heirs:
While there are legislative efforts in Congress—such as House Bill 6614 and Senate Bill 1865—to extend the amnesty period until December 31, 2028, these bills have not yet been enacted into law. As of today, heirs must settle estates under the regular tax regime.
Under the Regular Tax Regime:
Heirs are subject to the 6% estate tax rate. However, they must also account for the following penalties for late filing:
- Surcharges of 25% for late filing
- Interest of 12% annually for any filings made beyond the statutory one-year deadline from the date of death
Warning for Heirs:
If you inherited a property before June 16, 2025, and did not settle the estate tax during the amnesty period, you are now subject to the full regular rates, including possible penalties and interest for late filing. The BIR now strictly enforces the requirements for a Certificate Authorizing Registration (CAR), and the absence of an amnesty program means that late filings will incur significant penalties.
Important: There is currently no flexibility allowing sworn undertakings in lieu of formal Extrajudicial Settlements. The BIR now requires full, formal documentation, including a notarized Extrajudicial Settlement or a Court Order.
Estate Tax Computation for 2026
Step 1: Determine the Gross Estate
The gross estate includes all properties owned by the deceased at the time of death, including real estate, bank accounts, vehicles, and other assets.
Step 2: Compute Allowable Deductions
The following deductions may be claimed:
- Standard deduction (currently PHP 5,000,000)
- Medical expenses (subject to BIR rules)
- Funeral expenses
- Judicial and administrative expenses
- Claims against the estate
Step 3: Calculate the Net Estate
The net estate is the gross estate minus the allowable deductions. The 6% estate tax is imposed on the net estate.
Step 4: File BIR Form 1801 and Pay the Tax
The estate tax return must be filed within one year from the date of death. File BIR Form 1801 (Estate Tax Return) with the Revenue District Office (RDO) that has jurisdiction over the property.
The Extrajudicial Settlement Process
If the deceased left no will (intestate), there is no legal dispute among the heirs, and all debts have been settled, the heirs can execute an Extrajudicial Settlement of Estate (EJS) . This is the most common way to distribute property among heirs.
Who Can Use Extrajudicial Settlement? Under Philippine inheritance law, legal heirs include the surviving spouse, legitimate children, illegitimate children, adopted children, and parents or ascendants (if there are no children). All heirs must agree to the settlement, and there must be no outstanding debts.
Required Documents for Extrajudicial Settlement
- Certified True Copy of the land title
- Latest Tax Declaration of the property
- Death Certificate of the deceased
- Certificate of No Marriage (CENOMAR) (if relevant to the inheritance)
- Valid IDs of all heirs
- Proof of relationship (birth certificates, marriage certificates)
- Estate tax computation and proof of payment
Steps to Transfer Title to Heirs
1. Draft and Notarize the Extrajudicial Settlement (EJS)
Have a lawyer draft a legally sound EJS that includes the full names and signatures of all heirs, a complete description of the property, an agreement on the division of the property, and a statement that there are no pending debts. The document must be notarized by a licensed notary public.
Important: The EJS must be published in a newspaper of general circulation for 3 consecutive weeks. This publication is required by law and serves to inform the public of the settlement.
2. Pay the Estate Tax at the BIR
Submit BIR Form 1801 (Estate Tax Return) and pay the tax based on the total net estate value. Submit all required supporting documents to the BIR. Once the tax is paid and the documents are processed, the BIR will issue a Certificate Authorizing Registration (CAR) or eCAR.
3. Pay the Transfer Tax at the Municipal or City Treasurer’s Office
Present the notarized EJS and the CAR to the Treasurer’s Office. Pay the transfer tax, which is levied by the local government.
4. Transfer the Title at the Registry of Deeds
File the following documents at the Registry of Deeds:
- Notarized Extrajudicial Settlement
- Original land title
- Certificate Authorizing Registration (CAR) or eCAR from the BIR
- Transfer Tax receipt
- Valid IDs of all heirs
Important: Penalties and interest may apply if the estate tax is not paid within one year of death. Heirs should act promptly to avoid additional costs. Because the amnesty period has lapsed, the BIR now strictly enforces the requirements for a CAR, and the absence of an amnesty program means that late filings will incur significant penalties.
Author
John Paul Ybañez Paquibot
Licensed Real Estate Broker | PRC No. 00014132 | DHSUD No. CVRFO-B-03/18-2672
Bachelors Realty and Brokerage, Inc. Cebu
G/F Cap Building, Brgy. Corner, Osmeña Blvd.
Arlington Pond St. Extension, Cebu City, 6000 Cebu
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