Your guide to paying inheritance tax in

the Philippines
TransferWise content team
06.02.18
9 minute read
Did you recently inherit property or assets in the Philippines? If you’re unsure of what
your responsibilities are when it comes to paying taxes and notifying the authorities
then you’re in luck. This is a guide for residents, non-residents, and expats living
abroad, to explain how inheritance tax works in the Philippines.

What’s inheritance tax in the Philippines?

Inheritance tax is a tax placed on estates or assets that are passed on via a will of a
deceased or the law of succession. In the Philippines, the government refers to
inheritance tax as ‘estate tax.’ This isn't a tax on a property. Rather it's a tax on the
transmitting of the estate of the deceased upon death to the heir. Someone’s estate
can include property, but it’s not limited to property, it also includes everything else of
value that the deceased owned..

(Source 1, Source 2, 22 Dec 2017)

Who has to pay inheritance tax in the Philippines?

An Estate Tax return must be filed if the estate consists of registered property,
vehicles, stock shares or anything that requires a clearance from the Philippines
Bureau of Internal Revenue (BIR) and/or the gross value of the estate is more than
₱200,000.

(Source 22 Dec 2017)

Non-resident inheritance tax

Non-residents also need to file an Estate Tax return. If you're a non-resident heir but
the executor of the will lives in the Philippines, then the Estate Tax return can be filed
with an Authorized Agent Bank (AAB) of the specific Revenue District Office (RDO)
where the executor lives. If there’s no executor in the Philippines, for instance when
the deceased was not a resident of the Philippines, then the tax return should be
filed under the jurisdiction of RDO No. 39 South Quezon City.

(Source 28 Dec 2017)

What types of inheritance taxes are there in the
Philippines?
Ownership of the property in the Philippines

Philippine law identifies compulsory heirs who are entitled to parts of an estate. This
may leave only a portion of the estate to be disposed of at will.

Person Reserve

Spouse 25% if only one legitimate child; equal portion if more than
one child

1 legitimate child 50%

2 or more legitimate 50% split equally

children

Let’s say that a person is survived by a spouse and 5 legitimate children. The
children would each receive 10% of the estate (totalling 50%) and the spouse would
receive an equal share of 10%, leaving 40% of the estate left to be disposed of at
will.

If a property is owned by several parties, for instance by both spouses, then only the
part that was owned by the deceased will be part of the estate.

In the absence of a will, this is the order of heirs, according to the Filipino laws of
succession:

 Legitimate children
 Legitimate parents
 Illegitimate children
 Surviving spouse
  Brothers and sisters, nephews and nieces
 Other relatives
 Government

(Source 22 Dec 2017)

How is inheritance tax calculated?

Inheritance tax is calculated on the net value of the estate, otherwise known as the
‘gross estate.’ The gross estate refers to all property - real and personal, tangible
and intangible. This is calculated using the Fair Market Value (FMV) at the time of
the death. FMV is the price for which you could reasonably sell your estate to an
interested buyer if you would be interested in selling it. If the deceased wasn’t living
in the Philippines at the time of death and wasn’t a citizen of the Philippines, only the
part of the gross estate that was situated in the Philippines is considered taxable. In
the Philippines, inheritance tax calculations include interests or shares in a property,
transfers in contemplation of death, life insurance proceeds, and revocable transfers.

(Source 1, Source 2, 22 Dec 2017)

How can I reduce the amount of inheritance tax I pay?

You can reduce the amount of inheritance tax paid by applying as many deductions
on Estate Tax as possible. These deductions will help lower the total FMV of the
estate, potentially putting you in a lower tax threshold. Find out if any of the following
deductions could apply to the estate in question:

Item Explanation

Expenses, Losses, Funeral expenses, claims against the estate, judicial expenses of
Indebtedness, and intestate proceedings, claims of deceased against insolvent
Taxes (ELIT) individuals, unpaid mortgages

Property previously May be referred to as a ‘vanishing deduction’

taxed
Item Explanation

Transfers for public use The amount of all bequests, legacies, devises or transfers to or
for the use of the Government of the Republic of the Philippines,
or any political subdivision thereof, for exclusively public
purposes

Family home The lower number between the family home’s FMV or ₱1
million, and the family home must be certified by the barangay
captain of the locality

Standard deduction The amount of ₱1 million

Medical expenses Medical expenses incurred by the deceased within a year prior to
their death, which has to be substantiated with receipts, for a
maximum deduction of ₱500,000

Share in the conjugal As owned by the spouse or partner of the deceased

property

Amount received by The retirement benefits private firm employees

heirs under RA 4917

(Source 22 Dec 2017)

What are the inheritance tax thresholds in the
Philippines for 2017-2018?
Here’s a table explaining how much Estate Tax you’ll need to pay, based on the
estate’s value.

Net Estate Value Tax amount Plus additional Of the excess

(PHP) (PHP) % over

Up to 200,000 Exempt Exempt

200,001 - 500,000 0 5% 200,000

500,001 - 2,000,000 15,000 8% 500,000

2,000,001 - 5,000,000 135,000 11% 2,000,000

5,000,001 - 10,000,000 465,000 15% 5,000,000

10,000,000+ 1,215,000 20% 10,000,000

(Source 22 Dec 2017)

Are there any inheritance tax allowances in the
Philippines?
The government allows certain deductions which lower the FMV of your estate,
ultimately lowering your tax threshold.

Type of Deduction Amount (PHP)

Standard deduction 1,000,000

Family home 1,000,000

Funeral expenses 200,000

Medical expenses one year prior to death 500,000

(Source 22 Dec 2017)

Here’s an example of how your taxes would be calculated after the allowed
deductions:
 Plus
Deductions Net additional
FMV of (PHP)1,000,000 Estate Tax 8%of the Total
Estate (standard) + Value Amount excess over Taxes
(PHP) 200,000 (funeral) (PHP) (PHP) PHP 500,000 (PHP)

1,800,000 1,200,000 600,000 15,000 100,000 X 23,000

0.08 = 8,000

What constitutes a “gift tax” in the Philippines?

A ‘gift tax’ is a tax placed on a donation or a gift. The Philippines refers to this tax as
the ‘donor’s tax’ and it's imposed on the transfer of real, personal, tangible or
intangible property between two or more people who are living at the time of the
transfer when this is given as a gift, and no money exchanged hands. It differs from
the inheritance tax or ‘estate tax’ because it’s given by someone who is still living.
The gift tax applies whether the gift is direct or indirect.

(Source 22 Dec 2017)

Tax-free gift allowance

The annual tax-free donor allowance is anything with a value up to ₱100,000. This
table outlines tax rates for gifts over this amount:

Net Gift Amount (PHP) Tax Amount (PHP) Plus Of the Excess Over (PHP)

100,001 - 200,000 0 2% 100,000

Net Gift Amount (PHP) Tax Amount (PHP) Plus Of the Excess Over (PHP)

200,001 - 500,000 2,000 4% 200,000

500,001 - 1,000,000 14,000 6% 500,000

1,000,001 - 3,000,000 44,000 8% 1,000,000

3,000,001 - 5,000,000 204,000 10% 3,000,000

5,000,001 - 10,000,000 404,000 12% 5,000,000

10,000,001 + 1,004,000 15% 10,000,000

Some donations are tax exempt from gift tax.

Donations made by residents, to:

 Children, from their parents on account of a marriage

(up to ₱10,000)
 The government
 Educational, charitable, or religious organizations

Donations made by non-residents, to:

  The government
 Educational, charitable, or religious organisations

Every person - whether resident, citizen or non-resident - is required to file a donor

tax return if they transfer a gift.

(Source 22 Dec 2017)

What are the inheritance tax exemptions in the

Philippines?
Estates with a net value less than ₱200,000 are tax exempt. Additionally, the
Philippines shares double tax agreements with 41 countries across the world. While
these partnerships don’t qualify as exemptions per se, they can ensure that if you’re
paying tax in your home country, you’re not double paying it in the Philippines, and
vice versa. See the following chart for a list of countries with whom the Philippines
has a double tax treaty: