Inheritance tax in the Philippines is 6% of the net estate for both residents and non-residents, with taxation depending on whether the assets are located in the country or abroad.
Foreigners and expats need to understand estate rules, exemptions, and filing requirements to avoid penalties.
This article covers:
- How to calculate the inheritance tax?
- Who are the heirs to an estate without will in the Philippines?
- Who is responsible for paying the inheritance tax bill?
- How to avoid Inheritance Tax after death?
- Are there any ways to avoid inheritance tax?
Key Takeaways:
- Estate tax liability depends on the net estate value and the heir’s relationship to the deceased.
- Residents pay on worldwide assets; non-residents only on Philippine-situated assets.
- Exemptions, deductions, and occasional amnesties can reduce taxes.
- Strategic estate planning can legally minimize inheritance tax.
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The information in this article is for general guidance only. It does not constitute financial, legal, or tax advice, and is not a recommendation or solicitation to invest. Some facts may have changed since the time of writing.
What are the rules for inheritance in the Philippines?
Inheritance in the Philippines is governed by the estate tax system under the National Internal Revenue Code (NIRC), particularly Sections 84–88, as amended by the TRAIN Law (Republic Act No. 10963, 2017).
The estate of the deceased is assessed for taxation before distribution to heirs.
Both residents and non-residents may be subject to tax, but the scope differs:
- Residents are taxed on worldwide assets
- Non-residents are taxed only on assets located in the Philippines
All transfers through inheritance or via a will are included.
Failure to report or pay estate tax can lead to penalties, interest, and legal claims against the estate.
How is inheritance tax calculated in the Philippines?
Inheritance tax is calculated based on the net estate, which is the total estate minus allowable deductions, debts, funeral expenses, and exemptions.
- For estates filed after January 1, 2018, the current estate tax rate is 6% of the net estate.
- Net estate = Gross estate − deductions − exemptions
- Special rules apply for non-residents, where only assets located in the Philippines are included in the calculation.
Who will pay inheritance tax in the Philippines?
The heirs or beneficiaries are responsible for paying inheritance tax.
If the estate has a legal representative, the executor may handle tax payment before distributing assets.
Are you taxed if you inherit money in the Philippines?
Yes, inheritances in the Philippines are subject to estate tax, which applies to the net estate of the deceased before distribution to heirs.
The current estate tax rate is 6% of the net estate after allowable deductions.
- Residents (citizens or resident aliens) are taxed on worldwide assets, including foreign properties.
- Non-residents (non-resident aliens) are taxed only on Philippine-situated assets, such as real estate or investments located in the Philippines.
- Deductions include a Php 5 million standard deduction, unpaid debts and funeral expenses, and certain claims against the estate.
Who inherits when there is no will in the Philippines?
If the deceased leaves no valid will, the estate is distributed under intestate succession rules according to the Philippine Civil Code. The hierarchy of heirs is:
- Legitimate children and descendants – inherit first in equal shares.
- Illegitimate children – inherit next, but receive half the share of legitimate children.
- Surviving spouse – entitled to a portion depending on the presence of children or ascendants.
- Parents or ascendants – inherit if no descendants exist.
- Collateral relatives – siblings, nephews, nieces, etc., inherit if no direct descendants or ascendants exist.
- The state – acts as the last resort if there are no surviving relatives.
This order ensures compliance with Philippine law and applies to both residents and foreigners with assets in the Philippines.
Where to pay inheritance tax in the Philippines?
Inheritance tax is filed and paid to the Bureau of Internal Revenue (BIR) through the estate’s local Revenue District Office.
- Payment is due within one year from the decedent’s death.
- Online filing may be available for certain estates, but most require in-person submission.
How to avoid inheritance tax in the Philippines?
One way to legally reduce inheritance tax in the Philippines is by transferring assets to heirs during your lifetime through properly documented lifetime gifting, rather than leaving them in the taxable estate.
You cannot completely eliminate IHT in the Philippines, but it can be legally minimized through careful estate planning. Tax evasion remains illegal.
- Lifetime gifting: Transfer money, property, or shares to heirs before death, ensuring gifts comply with Philippine rules and documentation.
- Spousal and family exemptions: Claim deductions for the surviving spouse, family home, or minor children, and use the Php 5 million standard deduction for estates.
- Use of trusts and corporate structures: Establish Philippine-compliant trusts or holding companies to hold assets, ensuring genuine substance and full reporting.
- Asset location planning: Keep foreign-situated assets outside the Philippine estate where allowed, while adhering to ownership, situs, and disclosure rules.
- Debt and liability management: Include allowable debts, funeral expenses, and obligations to reduce net estate value subject to taxation.
Illegal strategies, such as hiding assets, underreporting estate value, or ignoring reporting obligations, constitute tax evasion and can trigger penalties, interest, or criminal liability.
Who is exempt from inheritance tax in the Philippines?
No one is fully exempt from estate tax by default, but certain deductions and allowances can reduce taxable amounts.
- Spouses and legitimate heirs: Eligible for the family home exemption and the Php 5 million standard deduction from the gross estate.
- Minor children: May benefit indirectly through allowable deductions applied to the estate.
- Non-resident heirs: Only pay estate tax on Philippine-situated assets, potentially reducing overall liability.
- Other deductions: Funeral expenses, unpaid debts, and specific allowable claims can also lower the taxable estate.
These are legal mechanisms to reduce estate tax liability. Any misrepresentation or underreporting is tax evasion and carries penalties.
Is there amnesty for inheritance tax in the Philippines?
The Philippines occasionally offers estate tax amnesties to encourage filing of unpaid taxes without penalties or interest.
Check for current government programs via the BIR website or professional advisors.
Conclusion
Philippines inheritance tax applies to both residents and non-residents, calculated at 6% of the net estate.
For foreigners and expats, understanding asset location, allowable deductions, and proper estate planning is essential to ensure compliance and minimize liability.
Legal strategies like lifetime gifting, family exemptions, and compliant structures can reduce taxable amounts, while avoiding penalties requires timely filing with the BIR.
Clear planning and professional guidance make navigating Philippine inheritance tax manageable and legally secure.
FAQs
What is the main difference between estate tax and inheritance tax?
In the Philippines, the main difference is that estate tax is the official tax on a deceased person’s estate; inheritance tax is a broader, informal term sometimes used to describe taxes on assets received by heirs.
What happens if I don’t pay estate tax in the Philippines?
Failure to pay results in penalties, interest, and legal action. Heirs may be personally liable, and the estate cannot be fully distributed until taxes are settled.
What is the 7 year rule for inheritance?
The 7-year rule applies in the UK, where gifts made within seven years of death may still be subject to inheritance tax.
In the Philippines, there is no equivalent rule; estate tax must be filed and paid within one year from death, and lifetime gifts are treated separately for tax purposes.
What’s the most you can inherit without paying taxes?
The maximum you can inherit without paying estate tax in the Philippines is limited to allowable deductions, including the Php 5 million standard deduction, debts, and funeral expenses.
All net estates above this are taxed at 6%, with additional exemptions for spouses and minor children.
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