Estate tax is imposed on the net estate, so allowable deductions from the gross estate are what reduce the taxable base and the tax. For a citizen or resident decedent (under the TRAIN law), the deductions generally include: a standard deduction of five million pesos (P5,000,000), which requires no substantiation; the family home, deductible up to ten million pesos (P10,000,000); claims against the estate (the decedent's debts, subject to conditions); claims against insolvent persons included in the gross estate; unpaid mortgages, taxes, and casualty losses; property previously taxed (the vanishing deduction, to prevent double taxation of the same property within a short period); transfers for public use; and amounts received under the retirement benefits law. In addition, the net share of the surviving spouse in the conjugal or community property is deducted, because it is not part of the decedent's estate. After deductions, the estate tax is a flat six percent (6%) of the net estate. Non-resident aliens have a more limited set of deductions.
Estate tax is not computed on everything the deceased owned. It is computed on the net estate — after allowable deductions. Knowing them can dramatically lower the tax.
Gross Estate vs. Net Estate
The gross estate is the total value of the decedent's property at death. The net estate is the gross estate minus allowable deductions. The 6% estate tax (under the TRAIN law) is applied to the net estate.
The Standard Deduction (P5 Million)
For a citizen or resident decedent, there is a standard deduction of five million pesos (P5,000,000) — deductible without needing substantiation. This alone shelters a large part of many estates.
The Family Home (Up to P10 Million)
The family home is deductible up to ten million pesos (P10,000,000) of its value. The excess over that amount is included in the taxable estate. Conditions apply (it must be the actual family home, certified as such).
Ordinary Deductions
Other deductions for a citizen/resident include:
- Claims against the estate — the decedent's debts, subject to substantiation and conditions;
- Claims against insolvent persons included in the gross estate;
- Unpaid mortgages, taxes, and casualty losses (under the conditions);
- Property previously taxed (vanishing deduction) — to avoid taxing the same property twice within a short period (it “vanishes” on a sliding scale over five years);
- Transfers for public use; and
- Amounts received under the retirement benefits law, where applicable.
The Share of the Surviving Spouse
A crucial deduction: the net share of the surviving spouse in the conjugal or community property is deducted. Why? Because that share belongs to the spouse, not the decedent — it was never part of the decedent's estate to begin with. Only the decedent's half (plus exclusive property) is taxed.
Non-Resident Aliens
Non-resident alien decedents have a more limited set of deductions and a smaller standard deduction, and only their property situated in the Philippines is included, subject to reciprocity rules for certain intangibles.
Practical Takeaways
- Estate tax is 6% of the net estate — after allowable deductions, which can be substantial;
- Key deductions: a P5M standard deduction, the family home up to P10M, claims/debts, and the vanishing deduction;
- The surviving spouse's share of the conjugal/community property is deducted because it is not the decedent's — and non-resident aliens have narrower deductions.
Frequently Asked Questions
What is the difference between the gross estate and the net estate? The gross estate is the total value of the decedent's property at death. The net estate is the gross estate minus allowable deductions. The 6% estate tax is applied to the net estate.
What is the standard deduction for estate tax? For a citizen or resident decedent, a standard deduction of five million pesos (P5,000,000), which requires no substantiation. It shelters a large part of many estates automatically.
How much of the family home is deductible? The family home is deductible up to ten million pesos (P10,000,000) of its value, subject to conditions. The excess over that amount is included in the taxable estate.
Is the surviving spouse's share taxed in the estate? No. The net share of the surviving spouse in the conjugal or community property is deducted, because it belongs to the spouse and was never part of the decedent's estate. Only the decedent's half plus exclusive property is taxed.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
If you have questions about your rights or options under Philippine law, our firm is available to assist. You may reach us via Viber or WhatsApp, call us at 0995 433 5550, or send an email to vivasnobles@gmail.com. We look forward to hearing from you.