Quick answer

Selling inherited real property in the Philippines is subject to a flat 6% capital gains tax on whichever is higher between the gross selling price and the property’s fair market value, due within 30 days of the sale. Before that sale can even be registered, though, the estate’s own tax must first be settled and a BIR Certificate Authorizing Registration issued in the heirs’ names.

When an heir sells real property that forms part of an inheritance, the transaction is treated the same way as any other sale of a capital asset by an individual: it is subject to a final capital gains tax of 6%, computed on whichever is higher between the gross selling price stated in the deed and the property’s current fair market value. This 6% is a final tax, meaning it is not added to the seller’s other income and no further income tax is due on the gain. But the tax on the eventual sale is rarely the first hurdle — settling the estate itself usually comes first.

The Short Answer: 6% of the Higher Value

The capital gains tax rate on real property classified as a capital asset is a flat 6%, and it applies whether the seller is the original owner or an heir who inherited the property. The tax base is whichever is higher among: the gross selling price stated in the deed of sale, the fair market value as determined by the Bureau of Internal Revenue (BIR), known as the zonal value, or the fair market value shown in the schedule of values of the provincial or city assessor. Sellers who assume the tax is simply 6% of the price they negotiated with the buyer are often surprised to learn the BIR will use the zonal value instead if it happens to be higher.

Before You Can Sell: Settle the Estate First

An heir cannot simply sign a deed of sale over inherited land the way an owner who bought the property outright could. Title remains in the deceased’s name until the estate is settled — whether through an extrajudicial settlement, where the heirs are all of age, agree among themselves, and there is no will or outstanding debts, or a judicial settlement supervised by the court. Only after the estate tax return is filed, the estate tax is paid, and the BIR issues an electronic Certificate Authorizing Registration (eCAR) for the estate can title be transferred into the heirs’ names — and only then can a subsequent sale to a third party be registered with the Registry of Deeds. In practice, most buyers and their banks will not proceed with a purchase at all until this eCAR for the estate is already in hand, since it is what allows the Register of Deeds to cancel the deceased’s title and issue a new one in the heirs’ names.

How the 6% Is Computed in Practice

Once the property is validly in the heirs’ names, the capital gains tax on the subsequent sale to a buyer is computed on the higher of the gross selling price stated in the new deed of sale, the BIR zonal value for that location, or the fair market value per the local assessor’s schedule. For example, if the deed states a selling price of ₱5,000,000 but the BIR zonal value for the area works out to ₱6,000,000, the tax is computed on ₱6,000,000, not the contract price. This is one of the more common places sellers underestimate what they will actually owe, since negotiations with a buyer naturally focus on the contract price rather than the zonal value.

Other Costs That Come With the Sale

Capital gains tax is not the only cost involved. The deed of sale is also subject to documentary stamp tax of ₱15.00 for every ₱1,000, or a fraction of it, of the consideration or fair market value, whichever is higher — effectively 1.5% of that value. Local governments separately impose a transfer tax on the conveyance, and the Registry of Deeds and the assessor’s office each charge their own registration and issuance fees; these vary by city or province, so it is worth confirming the current schedule with the local Registry of Deeds or treasurer’s office before closing. By common practice, and often by contract, the capital gains tax is shouldered by the seller while the documentary stamp tax and transfer tax are typically shouldered by the buyer, though the parties are free to agree otherwise in the deed of sale itself.

The 30-Day Filing Deadline

The capital gains tax return, BIR Form No. 1706, must be filed and the tax paid within 30 days following the sale or disposition. Filing late triggers a 25% surcharge on top of the tax due, plus interest, and if the delay is found to have been willful, a heavier 50% surcharge can apply instead. Because the eCAR needed to transfer title to the buyer cannot be released until this return is filed and the tax, together with the documentary stamp tax, is paid and verified, missing the 30-day window does not just cost penalties — it stalls the entire transfer until everything is settled.

The Principal Residence Exemption Rarely Helps With Inherited Property

The Tax Code exempts the sale of a seller’s principal residence from capital gains tax if the full proceeds are used to acquire or construct a new principal residence within eighteen months, the Commissioner of Internal Revenue is notified within 30 days of the sale, and the exemption is used no more than once every ten years. This exemption can apply to inherited property, but only if the heir who is selling actually lived in that property as their own family home — it does not extend to heirs who inherited a share but never resided there, and even where it does apply, the exemption is prorated according to that particular heir’s proportionate share when there are several co-owners.

Documents the BIR Will Ask For

To process the capital gains tax payment and release the eCAR for the sale to the buyer, the BIR Revenue District Office having jurisdiction over the property typically requires the notarized deed of sale, certified true copies of the title and the latest tax declaration, proof that the estate’s own eCAR was already issued, since that is what allowed the title to move into the heirs’ names in the first place, valid identification and tax identification numbers for all parties, and, where someone signs on another’s behalf, a notarized Special Power of Attorney. Sellers who wait until after the deed is signed to start gathering these documents are usually the ones who end up missing the 30-day filing window.

Who Actually Pays, and What Happens if Multiple Heirs Are Selling Together

Where several heirs jointly sell an inherited property, each is generally treated as a co-seller for tax purposes, and the capital gains tax is computed on the property as a whole rather than heir by heir, then settled from the combined proceeds before distribution. It is worth agreeing among the heirs, in writing, on how the tax and other closing costs will be shared before the deed is signed, since disputes over who advances the funds for the BIR payment are a common source of delay once a buyer is already waiting to close.

What if the Property Was Sold Before the Estate Is Settled

Some families try to shortcut the process by having a buyer pay directly while the property is still titled in the deceased owner’s name, with the heirs promising to complete the transfer later. This is risky for both sides: the Registry of Deeds cannot register a transfer from a deceased person, and the BIR will not release an eCAR for a sale by heirs who have not yet obtained their own eCAR for the estate. Buyers who put money down under an informal arrangement like this can end up with a property they cannot register, and heirs who spend the proceeds before the estate tax is paid can find themselves short of funds when the BIR assessment finally comes due, since the estate tax, surcharges, and interest do not go away simply because the money has already changed hands.

Quick Checklist Before You List an Inherited Property for Sale

Selling inherited property is rarely just a capital gains tax question — it is usually the last step of an estate settlement that, ideally, should have been finished well before a buyer is found.

Frequently Asked Questions

Who pays the capital gains tax when heirs sell inherited property? By law the tax is imposed on the seller, and in an heirs’ sale the heirs, as the sellers, are the ones liable for the 6% tax, though the deed of sale can allocate the actual cost differently between seller and buyer.

Can heirs sell the property before the estate tax is paid? No sale can be validly registered and title transferred to a buyer until the estate tax is settled and the eCAR for the estate is issued, since the Registry of Deeds needs that document to cancel the deceased owner’s title.

Is capital gains tax based on the price we agreed with the buyer? Only if that price is higher than the BIR zonal value and the assessor’s fair market value; the tax is always computed on whichever of the three figures is highest, not simply the contract price.

What happens if the capital gains tax return is filed late? A 25% surcharge is added to the tax due, plus interest, and the eCAR needed to transfer the title to the buyer will not be released until the return is filed and the tax, surcharge, and interest are paid.

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.

The 6% tax is easy to compute once the estate is settled; the settlement itself is almost always the longer part of the process.