Estate Tax (2026 Guide)

What is estate tax?

Who pays estate tax?

Required for

The estate of a deceased person bears the 6% estate tax (NIRC § 84-86). The executor or administrator (or, where none is appointed, the heirs) must file the estate tax return (BIR Form 1801) and pay the tax. A resident or citizen decedent is taxed on the worldwide net estate; a non-resident alien decedent on Philippine-situated property only.

Optional for

Heirs may avail of the estate tax amnesty or installment payment options where allowed, but settlement of the estate tax is required before property can be transferred to the heirs.

Exempt

Net estates within the ₱5,000,000 standard deduction and other deductions (family home up to ₱10,000,000, claims against the estate, unpaid mortgages) may result in zero tax; the GSIS/SSS proceeds and certain bequests to government or accredited institutions are excluded from the gross estate under NIRC § 87.

Worked examples

1. Example 1

   Maria Santos, a resident of Manila, died on June 15, 2025. Her gross estate includes real property valued at ₱3,000,000, bank accounts totaling ₱1,500,000, and life insurance proceeds of ₱500,000 payable to her estate. Funeral expenses were ₱200,000.

   Gross Estate = ₱3,000,000 + ₱1,500,000 + ₱500,000 = ₱5,000,000
   Allowable Deductions = Standard Deduction ₱5,000,000 (funeral expenses are not deductible under TRAIN)
   Net Estate = ₱5,000,000 − ₱5,000,000 = ₱0
   Estate Tax = ₱0
   

   Result: No estate tax is due because the standard deduction covers the whole gross estate. BIR Form 1801 must still be filed by June 15, 2026, to report the estate and claim the standard deduction.

2. Example 2

   Juan Reyes, a resident of Cebu, died on March 1, 2025. His gross estate includes a house valued at ₱8,000,000, a car worth ₱500,000, and savings of ₱2,000,000. Funeral expenses were ₱300,000, and administrative expenses were ₱150,000.

   Gross Estate = ₱8,000,000 + ₱500,000 + ₱2,000,000 = ₱10,500,000
   Allowable Deductions = Standard Deduction ₱5,000,000 (funeral and administrative expenses are not deductible under TRAIN)
   Net Estate = ₱10,500,000 − ₱5,000,000 = ₱5,500,000
   Estate Tax = ₱5,500,000 × 6% = ₱330,000
   

   Result: Estate tax of ₱330,000 is due. BIR Form 1801 must be filed by March 1, 2026, with payment of ₱330,000 to the BIR. If the house was the family home, its value (up to ₱10,000,000) is also deductible, which would bring the tax to zero.

3. Example 3

   Rosa Fernandez, a non-resident alien, died on September 10, 2025. She owned a condominium in Manila valued at ₱4,000,000 and had a bank account in the Philippines with ₱500,000. She had no property outside the Philippines. Funeral expenses were ₱100,000.

   Gross Estate (Philippines property only) = ₱4,000,000 + ₱500,000 = ₱4,500,000
   Allowable Deductions = Standard Deduction for a non-resident alien ₱500,000
   Net Estate = ₱4,500,000 − ₱500,000 = ₱4,000,000
   Estate Tax = ₱4,000,000 × 6% = ₱240,000
   

   Result: Estate tax of ₱240,000 is due. The estate of a non-resident alien gets a ₱500,000 standard deduction, not ₱5,000,000. BIR Form 1801 must be filed by September 10, 2026.

4. Example 4

   Antonio Gonzales, a resident of Davao, died on January 20, 2025. His gross estate includes real property worth ₱15,000,000, investments of ₱5,000,000, and life insurance proceeds of ₱2,000,000 (he owned the policy). Funeral expenses were ₱400,000, and he had unpaid medical bills of ₱300,000.

   Gross Estate = ₱15,000,000 + ₱5,000,000 + ₱2,000,000 = ₱22,000,000
   Allowable Deductions = Unpaid medical bills (claims against the estate) ₱300,000 + Standard Deduction ₱5,000,000 = ₱5,300,000
   Net Estate = ₱22,000,000 − ₱5,300,000 = ₱16,700,000
   Estate Tax = ₱16,700,000 × 6% = ₱1,002,000
   

   Result: Estate tax of ₱1,002,000 is due. The ₱400,000 in funeral expenses is not deductible under TRAIN. BIR Form 1801 must be filed by January 20, 2026, with payment of ₱1,002,000.

Common mistakes to avoid

• Failing to include life insurance proceeds in the gross estate because the executor mistakenly believes insurance is always exempt from estate tax.

  Penalty:

  Understatement of the gross estate, leading to underpayment of estate tax. The BIR may assess the deficiency plus 25% surcharge and 12% annual interest, potentially totaling 37% or more of the unpaid tax.

  How to avoid it:

  Review every life insurance policy on the decedent's life. Include the proceeds in the gross estate when they are payable to the estate or to a beneficiary whose designation is revocable; exclude them only when the policy makes the designation irrevocable (NIRC Sec. 85(E)).

• Missing the one-year filing deadline for BIR Form 1801, assuming the estate can be distributed to heirs without filing the return.

  Penalty:

  25% surcharge on the unpaid estate tax, plus 12% annual interest. The BIR may also freeze the estate's assets and prevent distribution to heirs until the return is filed and tax is paid.

  How to avoid it:

  Mark the one-year deadline from the date of death on a calendar. File BIR Form 1801 with the appropriate RDO at least 30 days before the deadline to allow time for processing. Use electronic filing (eBIR or eFPS) for faster submission.

• Deducting funeral, judicial or medical expenses, which the TRAIN Law removed as estate tax deductions from 2018.

  Penalty:

  The BIR will disallow the deduction, increasing the net estate and the estate tax due. This may result in an assessment and penalties if the return was filed with the disallowed deduction.

  How to avoid it:

  Claim only the deductions in NIRC §86 as amended, namely the standard deduction, the family home, claims against the estate, unpaid mortgages, casualty losses, transfers for public use and the surviving spouse's share. Unpaid medical bills owed by the decedent can count as a claim against the estate; funeral costs cannot.

• Not applying the ₱5,000,000 standard deduction because the executor is unaware of this deduction or believes it applies only to certain estates.

  Penalty:

  Overpayment of estate tax. While this does not result in penalties, it means the heirs lose the benefit of the deduction and pay more tax than legally required.

  How to avoid it:

  Always apply the ₱5,000,000 standard deduction to estates of residents of the Philippines, regardless of the size of the estate or the decedent's citizenship. This deduction is available to the estates of citizens and residents under NIRC §86(A) as amended by RA 10963; non-resident alien estates get ₱500,000.

• Failing to report all assets of the decedent, including foreign property, bank accounts, and investments, in the gross estate.

  Penalty:

  Understatement of the gross estate and underpayment of estate tax. The BIR may conduct an investigation, assess the deficiency, and impose a 25% surcharge plus 12% annual interest. Criminal penalties may also apply for tax evasion.

  How to avoid it:

  Prepare a complete inventory of all assets owned by the decedent at the time of death, including real property, personal property, bank accounts, investments, life insurance, and foreign property (if the decedent was a resident). Obtain appraisals and valuations for all assets and attach them to the estate tax return.

Ways to lower the tax legally

• On top of the ₱5,000,000 standard deduction, document every other allowable deduction (the family home, claims against the estate, unpaid mortgages, casualty losses). This can greatly reduce the net estate and the estate tax liability.

  Potential savings: For an estate with a gross value of ₱10,000,000, properly claiming all deductions could reduce the net estate from ₱10,000,000 to ₱5,000,000 or less, saving up to ₱300,000 in estate tax (6% of ₱5,000,000).

• Consider gifting assets during the decedent's lifetime to reduce the size of the estate subject to estate tax. Gifts are subject to donor's tax (6% rate), but strategic gifting can reduce the overall transfer tax burden if the decedent's estate is large.

  Potential savings: Gifting ₱2,000,000 during lifetime incurs donor's tax of ₱120,000 (6%), but reduces the estate by ₱2,000,000, saving ₱120,000 in estate tax (6% of ₱2,000,000). The net tax cost is the same, but gifting allows the donee to enjoy the asset during the decedent's lifetime.

• Ensure life insurance policies are owned by a trust or a third party (not the decedent) to exclude the proceeds from the gross estate. If the decedent owns the policy, the proceeds will be included in the gross estate and subject to estate tax.

  Potential savings: A ₱2,000,000 life insurance policy owned by the decedent adds ₱2,000,000 to the gross estate, increasing estate tax by ₱120,000 (6%). If the policy is transferred to a trust or owned by a third party, the proceeds are excluded, saving ₱120,000 in estate tax.

• Plan for the payment of estate tax by setting aside liquid assets or arranging for a loan to pay the tax within the prescribed period. Failure to pay on time results in a 25% surcharge and 12% annual interest, which quickly adds to the tax bill.

  Potential savings: Timely payment of estate tax avoids the 25% surcharge and 12% annual interest. For an estate tax of ₱500,000, avoiding these penalties saves ₱185,000 (37% of the tax) over two years.