A Comprehensive Guide to Determining the Gross Estate for Estate Tax in the Philippines

Disclaimer: This article is for general informational purposes only and is not intended as legal, tax, or financial advice. For specific concerns or inquiries, please consult a qualified professional.

1. Overview of Philippine Estate Tax

In the Philippines, the estate tax is a tax imposed on the right of the decedent (the person who has passed away) to transfer property at death. It is assessed on the total value of the decedent’s taxable estate—technically called the “net estate”—but the foundation of this computation begins with the “gross estate.”

The concept of “gross estate” is central to determining how much estate tax a decedent’s heirs will ultimately pay. The Philippine legal framework for estate tax primarily falls under the National Internal Revenue Code (NIRC) of 1997 (as amended), particularly under Title III, Estate and Donor’s Taxes, and relevant Bureau of Internal Revenue (BIR) issuances (such as Revenue Regulations No. 12-2018, implementing provisions of the TRAIN Law).

2. What Is the Gross Estate?

The gross estate is the total value of all properties and rights of the decedent at the time of death before any deductions (funeral expenses, claims against the estate, unpaid mortgages, standard deductions, etc.) are taken. These properties can be located within or outside the Philippines, depending on whether the decedent was a resident or non-resident of the Philippines at the time of death.

2.1 Importance of the Gross Estate

Starting Point for Computation: The gross estate is the initial figure on which allowable deductions are applied to arrive at the net taxable estate.
Compliance: Accurate reporting of the gross estate is crucial because under-declaration or misrepresentation can lead to penalties and surcharges from the BIR.
Estate Settlement: Estate proceedings often hinge upon the correct valuation and declaration of all assets included in the gross estate.

3. Legal Basis: Section 85 of the NIRC

3.1 Statutory Definition

Under Section 85 of the NIRC, the gross estate includes the value of all property, real or personal, tangible or intangible, wherever situated. Key points include:

Resident Citizen Decedent: All properties, regardless of location (Philippines or abroad), are included in the gross estate.
Non-Resident Citizen Decedent: Similarly, all properties, regardless of location, are included in the gross estate.
Resident Alien Decedent: All properties located in the Philippines and other properties wherever situated are generally included, subject to certain conditions and reciprocal tax agreements.
Non-Resident Alien Decedent: Only properties situated in the Philippines are included, subject to exceptions if there are tax treaties or reciprocity provisions that apply.

3.2 Train Law Amendments

The TRAIN Law (Republic Act No. 10963) introduced a simplified and uniform estate tax rate (6% of the net estate) and certain adjustments to allowable deductions. However, it did not fundamentally alter what goes into the computation of the gross estate; rather, it modified the rates and certain deduction thresholds.

4. Components of the Gross Estate

The gross estate typically comprises any property or interest in property owned or possessed by the decedent at the time of death. Common inclusions:

Real Property
- Land, buildings, and improvements located in the Philippines (for all decedents if deemed part of the Philippines-situs property) or abroad (for resident citizens and others as applicable).
- Valuation often follows the fair market value (FMV) based on the higher of:
  a) the BIR zonal value, or
  b) the fair market value as determined by the provincial/city assessor at the time of death.
Personal Property (Tangible)
- Vehicles, jewelry, artworks, collectibles, and other physical assets.
- Assessed at their fair market value at the time of death.
Personal Property (Intangible)
- Bank deposits, stocks, bonds, and other financial instruments.
- Stocks of domestic corporations are considered situated in the Philippines. Stocks of foreign corporations may or may not be included depending on the decedent’s residency and reciprocity rules.
- Valuation of shares of stock: typically determined by the book value or the actual selling price (whichever is applicable) at the time of death.
Life Insurance Proceeds
- Insurance proceeds payable to the estate are included in the gross estate.
- If the beneficiary is designated as “irrevocable” and not the estate, the proceeds are generally excluded from the gross estate.
- However, if the decedent retained incidents of ownership, or if the proceeds are payable to the decedent’s estate, they form part of the gross estate.
Accruals or Receivables
- Unpaid salaries, royalties, or other amounts owed to the decedent at the time of death.
- These items become part of the gross estate if collectible as of the decedent’s date of death.
Transfers in Contemplation of Death
- Properties that the decedent transferred or assigned but effectively retained control or enjoyment of, or that were transferred shortly before death to avoid estate tax, can still be included in the gross estate under anti-tax avoidance provisions.
Property Passing Under a General Power of Appointment
- If the decedent held a general power of appointment over certain property (i.e., the power to dispose of it without restriction), that property might be included in the gross estate.

5. Special Considerations by Residency

Citizen or Resident Decedents
- Includes properties situated anywhere in the world.
- Must be declared and evaluated for inclusion in the gross estate.
Non-Resident Alien (NRA) Decedents
- Only properties situated in the Philippines are included.
- Intangible properties situated in the Philippines (e.g., shares of stock in a Philippine corporation) are included unless exempted by virtue of tax treaties or reciprocity.
- Reciprocity rule: If the country of the NRA decedent does not impose estate tax on intangible properties of Filipino citizens dying in that country, or it allows a similar exemption, the intangible properties in the Philippines owned by the NRA decedent may be exempt.

6. Valuation Guidelines

6.1 General Rule of Fair Market Value

For real properties, the basis is typically the higher of the BIR zonal value and the value determined by the local assessor’s office.
For personal properties (tangible), it is the price a willing buyer would pay a willing seller as of the date of death (fair market value).
For personal properties (intangible), it can be the market quotation (for publicly listed shares) or book value (for unlisted shares or other intangible assets).

6.2 Documentary Requirements

To substantiate the valuation, the executor or administrator usually needs to submit:

Certified true copies of the Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT) for real properties.
Certificate of Zonal Values or Assessor’s Valuation.
Bank Certification for deposits, indicating the balance at the time of death.
Stock Certificates, or certification from the Corporate Secretary or transfer agent regarding shareholdings.
Appraisal reports from accredited appraisers for other valuable personal properties (e.g., artworks, antiques, jewelry).

7. Common Mistakes in Declaring the Gross Estate

Failure to Include Assets Held Abroad
- For resident citizens, all assets, whether in the Philippines or overseas, must be declared. Omitting foreign assets can trigger penalties.
Incorrect Valuation
- Providing outdated or arbitrary valuations for real property.
- Not obtaining the latest bank certifications.
Improper Classification of Beneficiary Designations
- Misconception that all insurance proceeds are excluded. In fact, proceeds payable to the estate or in certain “revocable” beneficiary designations are included.
Overlooking Minor or Nominal Assets
- Some fail to account for personal effects like jewelry, art, or collectibles, which can have significant value.
Failure to Acknowledge Transfers in Contemplation of Death
- Assets hurriedly transferred shortly before death may still be subject to inclusion if the decedent effectively retained control or enjoyment.

8. After Determining the Gross Estate: Computation of the Net Estate

Once the gross estate has been determined, the following deductions (as applicable) can be applied to arrive at the net taxable estate (on which the 6% estate tax rate is levied):

Standard Deduction: ₱5,000,000 (for deaths on or after January 1, 2018, under the TRAIN Law).
Claims Against the Estate: Valid debts of the decedent.
Claims Against Insolvent Persons: If the decedent had claims that are uncollectible from insolvent debtors.
Unpaid Mortgages: Provided the value of the mortgaged property is included in the gross estate.
Medical Expenses: In the past, there was a separate deduction, but under current regulations, this is subsumed under the standard deduction.
Family Home: Up to ₱10,000,000, subject to conditions that it is the decedent’s family home as certified by the Barangay or other documents.
Amount Received by Heirs Under RA 4917 (Retirement benefits).

The net estate = Gross Estate – (Allowable Deductions). The 6% tax is then applied on this net amount.

9. Filing, Payment, and Deadlines

Estate Tax Return (BIR Form 1801): Must be filed within one (1) year from the decedent’s date of death. An extension of up to 30 days may be granted in meritorious cases.
Payment: Estate tax can be paid in partial installments under certain conditions, but timely filing is crucial to avoid penalties.

10. Practical Tips for Compliance

Organize Documentation Early
- Even before a death, if possible, gather documents on titles, bank accounts, shareholdings, insurance policies, etc.
- After death, the executor or administrator should promptly secure death certificates, bank certifications, property appraisals, and valuations.
Consult Professionals
- Estate matters can be complex, particularly if assets are in multiple jurisdictions or if the decedent was a non-resident. A tax lawyer or accountant versed in estate tax can streamline the process and ensure compliance.
Be Aware of Reciprocity Rules
- If the decedent was a non-resident alien, check if the country of domicile has a tax treaty with the Philippines or follows reciprocity in exempting intangible assets.
Maintain Open Communication with the BIR
- If additional time is needed for filing or if you need clarifications on complicated assets, consult with the BIR early. Delay might lead to penalties.

11. Frequently Asked Questions (FAQs)

Are digital assets (e.g., cryptocurrency) part of the gross estate?
- Yes. Although Philippine law does not have specific guidelines dedicated solely to cryptocurrency or other digital assets, general principles indicate that any property or intangible right with fair market value is part of the gross estate.
What happens if an heir discovers undisclosed assets after filing the estate tax return?
- An amended return may be filed if new assets are discovered after the initial filing. Additional tax, interest, and potential penalties may apply for late disclosures.
How is the value of shares in a closely held corporation determined?
- Typically, the book value or an appraisal method is used. The BIR often requires an audited financial statement and a duly certified computation of the net book value of the shares.
If a property is conjugal or community property, how is it included in the gross estate?
- Only the decedent’s share in the conjugal or community property is included in the gross estate—commonly, half of the entire property unless there is another agreed-upon or legally recognized arrangement.
Can family agreements override the valuation required for the gross estate?
- No. Private family agreements do not override statutory provisions on estate tax valuation. For estate tax purposes, the fair market value rules and official BIR/assessor valuations apply.

12. Conclusion

Determining the gross estate is the critical first step in computing the Philippine estate tax. It involves identifying and valuing all the decedent’s properties—real, personal, tangible, and intangible—considering the decedent’s residency status and relevant Philippine tax laws or reciprocity/treaty provisions. Meticulous documentation and professional guidance can help ensure compliance, prevent legal complications, and streamline the transfer of the decedent’s assets to their rightful heirs.

If you are an executor, administrator, or heir involved in the settlement of an estate, take time to understand these rules or consult qualified legal and tax professionals. Proper adherence to the statutory requirements, accurate asset valuation, and transparent reporting will help avoid unwanted penalties and ensure that the estate settlement process proceeds smoothly.