Disclaimer: This article is provided for general informational purposes only and does not constitute legal advice. For advice specific to your circumstances, it is best to consult a qualified lawyer or a licensed professional in the Philippines.

Overview

Selling inherited real property in the Philippines involves several processes and legal requirements, including the payment of estate tax, the transfer of the property title, and finally the actual sale. This article provides a comprehensive guide on the key considerations and steps when selling an inherited property after paying the estate tax.

1. Understanding Estate Tax

1.1 What Is Estate Tax?

The estate tax is a tax imposed on the transfer of the decedent’s estate to lawful heirs or beneficiaries. Essentially, it is charged on the privilege of transferring property upon death. Before heirs or beneficiaries can effectively claim ownership—and subsequently sell—the inherited property, the estate tax must first be settled with the Bureau of Internal Revenue (BIR).

1.2 Applicable Law

National Internal Revenue Code (NIRC) as amended, specifically provisions governing estate tax.
TRAIN Law (Republic Act No. 10963) introduced significant amendments to the tax code effective January 1, 2018, setting the estate tax rate at a flat 6% of the net estate value for deaths occurring on or after January 1, 2018.

1.3 Who Is Liable?

The executor or administrator of the estate (or, if none is appointed, the legal heirs) is responsible for filing the estate tax return and paying the estate tax due. Responsibility for late payment, should it occur, also falls on the estate or its legal representatives, potentially resulting in penalties and interest.

2. Computing the Estate Tax

Determine the Gross Estate: This includes the decedent’s total assets (real estate, bank accounts, investments, personal property, etc.) minus any allowable deductions.
Subtract Allowable Deductions: Under Philippine law, deductions may include funeral expenses (within specified limits), judicial expenses for estate settlement, unpaid mortgages, medical expenses (incurred within one year before death, subject to caps), and a standard deduction amount.
Apply the 6% Rate (for deaths on or after January 1, 2018): The estate tax in the Philippines is 6% of the net estate value.
File the Estate Tax Return and Pay: The estate tax return (BIR Form 1801) must be filed. If the decedent died on or after January 1, 2018, the return should be filed within one year from the date of death, unless extended by the Commissioner of Internal Revenue.

Important Note on Penalties: Late payment may incur surcharge and interest. Always check the latest BIR regulations or consult a tax professional.

3. Transferring the Title to Heirs

3.1 Certificate Authorizing Registration (CAR)

Once the estate tax is paid, the BIR issues the Certificate Authorizing Registration (CAR) or Electronic Certificate Authorizing Registration (eCAR). The CAR/eCAR is essential to transfer ownership of the real property from the decedent to the heirs.

3.2 Register the Deed of Extrajudicial Settlement or Court Order

Depending on how the estate is settled:

Extrajudicial Settlement: Used if the decedent left no will (intestate) or there is a will but no outstanding obligations, and heirs agree to partition the property among themselves without litigation. The extrajudicial settlement must be published once a week for three consecutive weeks in a newspaper of general circulation.
Judicial Settlement/Probate: If the will is contested or there are complicating factors, the settlement of the estate might have to go through the court process.

The settlement document must then be registered with the local Registry of Deeds. Ensure all documentary requirements (including the CAR/eCAR from the BIR) are complete.

3.3 Issuance of New Title in Heirs’ Names

After recording the extrajudicial settlement or court-approved partition at the Registry of Deeds, and paying any fees (such as registration fees, documentary stamp tax, transfer tax at the local government unit, etc.), a new Transfer Certificate of Title (for land) or Condominium Certificate of Title (for condominium units) will be issued in the names of the heirs.

4. Preparing to Sell the Property

Once the heirs have the new title in their names, they become the legal owners. At this point, they can proceed with the sale.

4.1 Clear Ownership and Title

Potential buyers or lending institutions will scrutinize the property title to ensure that:

The estate tax has indeed been paid (i.e., the property is cleared by the BIR).
The property is titled in the correct owners’ (heirs’) names.
No liens or encumbrances remain on the property.

4.2 Determine Fair Market Value

Heirs typically secure an appraisal or look up zonal values from the BIR and fair market values from the local assessor’s office. This helps in arriving at a fair selling price or at least establishing a price floor.

4.3 Prepare Real Estate Documents

Common documents for real estate sale in the Philippines include:

Agreement to Sell or Contract to Sell (if used)
Deed of Absolute Sale (must be notarized)
Owner’s Duplicate Copy of the Title
Tax Declaration and Receipts of Real Property Tax (showing updated payments)
Identification documents of the seller(s)

5. Closing the Sale of the Inherited Property

5.1 Execution of the Deed of Absolute Sale

The heirs (now sellers) and the buyer execute the Deed of Absolute Sale. This must be signed and notarized before a notary public to be valid and registrable.

5.2 Payment of Taxes and Fees

After notarization, the buyer (or as agreed in the contract) typically pays:

Capital Gains Tax (CGT) at 6% of the gross selling price or the zonal value, whichever is higher. Although it is legally the seller’s obligation, parties can negotiate who shoulders the CGT.
Documentary Stamp Tax (DST) at 1.5% of the gross selling price or the zonal value, whichever is higher.
Transfer Tax to the local government unit (LGU), rates vary depending on local ordinances (commonly around 0.5% to 0.75% of the selling price).
Registration Fees to the Registry of Deeds, based on a published schedule.

5.3 Issuance of New Title in Buyer’s Name

The buyer (or buyer’s representative) then registers the notarized Deed of Absolute Sale and pays the corresponding taxes and fees at the BIR, LGU, and Registry of Deeds. The Registry of Deeds will subsequently cancel the old title (in the heirs’ names) and issue a new Transfer Certificate of Title (or Condominium Certificate of Title) in the buyer’s name.

6. Possible Complications and Tips

Heirs Residing or Working Abroad
They may need to execute a Special Power of Attorney (SPA) notarized and consularized (or apostilled) so that someone in the Philippines can act on their behalf.
Multiple Heirs and Disagreements
If heirs do not agree on whether to sell or on the price, they may need mediation or a court proceeding to resolve their dispute.
Title Issues
If there are missing titles, overlapping boundaries, or conflicting claims, one might need legal counsel to resolve encumbrances or adverse claims before marketing the property.
Deadlines for Estate Tax Amnesty
From time to time, the government may grant an Estate Tax Amnesty allowing estates of those who died within specific dates to settle outstanding estate taxes at reduced rates or with penalties waived. Check if any amnesty provisions are currently in force or have been extended.
Payment of Real Property Tax Arrears
Local government units impose penalties for late payment of real property tax (amilyar). Check for any outstanding property tax arrears so that buyers are assured the property is free of encumbrances.

7. Practical Steps Summary

Settle the Estate
- Pay estate tax.
- Secure the CAR/eCAR from the BIR.
- Have the extrajudicial settlement (or court order) registered at the Registry of Deeds.
- Obtain new titles in heirs’ names.
Prepare the Property for Sale
- Ensure the property is unencumbered and that real property taxes are up to date.
- Determine the fair market value and set a selling price.
Sell the Property
- Execute the Deed of Absolute Sale.
- Pay capital gains tax, documentary stamp tax, local transfer taxes, and registration fees.
- Have the buyer register the sale at the Registry of Deeds to obtain a new title in the buyer’s name.

Conclusion

Selling an inherited property in the Philippines is a multi-phase process, starting with estate settlement and culminating in the transfer of ownership to the buyer. The most critical step is ensuring the estate tax is fully paid and a CAR/eCAR is issued before title can legally pass from the decedent to the heirs—and ultimately from the heirs to the buyer.

Because of the technical and legal complexities involved—ranging from understanding tax computations to dealing with multiple heirs—consulting a lawyer or a tax professional with real estate expertise is highly advisable to avoid penalties, disputes, or invalid transactions. By following the proper legal processes, heirs can successfully sell an inherited property and protect themselves from future legal entanglements.