A strategy often presented on TikTok and Facebook as a tax trick looks considerably less attractive once Philippine taxes, interest costs and the risk of losing the property are included.
A financial strategy frequently appears on TikTok, Facebook Reels and other social media platforms. The story usually goes something like this.
A mother buys land for $80,000. Decades later, it is worth $4 million. Instead of selling the property and triggering capital gains tax, she borrows against it. Because a loan is not income, she supposedly pays no tax and lives on borrowed money.
When she dies, her children inherit the land at a $4 million tax basis. They sell it and, under the simplified American example, the $3.92 million appreciation accumulated during their mother’s lifetime effectively escapes capital gains tax.
The post usually ends with some variation of: “This is the playbook the wealthy use.”
The strategy is commonly known in the United States as “buy, borrow, die.” But applying the same idea to the Philippines produces a very different result.
The Philippine tax equation is different
Suppose a Filipino bought land years ago for P10 million and it is now worth P100 million.
If the property is classified as a capital asset and is sold for P100 million, Philippine capital gains tax is generally 6 percent of the gross selling price or fair market value, whichever is higher. It is not calculated on the P90 million increase in value.
Assuming P100 million is the applicable tax base, the CGT would therefore be:
P100 million × 6% = P6 million
The owner could instead decide not to sell and borrow against the property.
This appears attractive because the owner gets cash while retaining ownership of the land. But this is where the social media explanation usually stops too early.
Borrowing does not create wealth
Suppose the P100 million property secures a P60 million loan.
The owner now has P60 million in cash, but also owes P60 million to the bank. Borrowing has not created P60 million of additional wealth. It has converted part of the owner’s equity in the property into cash and created an equivalent liability.
The 60 percent assumption is useful for illustration. Philippine banking regulations have historically recognized limits on the collateral value of real estate, including a 60 percent maximum collateral value under BSP rules, although the amount a particular bank will actually lend depends on its underwriting, the property and the borrower.
More importantly, P60 million is not free money. Suppose the loan costs 7 percent a year. Interest alone would amount to:
P60 million × 7% = P4.2 million a year
After five years, that represents P21 million of simple interest if the loan balance remained unchanged. After ten years, it would be P42 million.
Compare that with the P6 million capital gains tax that the owner was supposedly trying to avoid.
Suddenly, borrowing simply to avoid selling does not look particularly clever.
Who pays the interest?
There is another problem. Where will the P4.2 million annual interest payment come from?
If the P100 million property is an apartment building that generates enough rental income to service the loan, borrowing against it may make economic sense.
If it is idle land generating no cash flow, the borrower needs income from somewhere else.
This is one of the most important details missing from many “buy, borrow, die” videos. They explain how wealthy people borrow against assets, but rarely spend much time explaining how those loans are serviced.
Eventually, interest must be paid. Principal must be repaid. Refinancing is not guaranteed.
If the borrower cannot meet the obligations secured by the property, the lender can ultimately pursue foreclosure under Philippine law. Extrajudicial foreclosure of real estate mortgages is governed by Act No. 3135 and involves a public auction process.
The strategy therefore exchanges one certainty, paying tax when an asset is sold, for another set of risks.
Leverage works both ways
Borrowing also changes what happens when property values fall.
Suppose the P100 million property is financed with P60 million of debt. The owner’s remaining equity is P40 million.
Now suppose the property’s market value falls by 25 percent to P75 million.
The debt may still be close to P60 million. The owner’s equity has therefore fallen to only:
P75 million property value − P60 million debt = P15 million
The property declined by 25 percent, but the owner’s P40 million equity declined by 62.5 percent.
That is leverage. It magnifies the benefit when an asset appreciates, but it also magnifies the damage when its value falls.
What happens when the owner dies?
The Philippine tax treatment also weakens the comparison with the American strategy.
The Philippines imposes an estate tax of 6 percent on the net taxable estate, subject to deductions and other rules. The heirs may therefore face estate tax even though the property was never sold.
More importantly, inheriting the property does not create the same simple tax outcome portrayed in the American social media example.
If the heirs later sell Philippine real property classified as a capital asset, the sale can itself be subject to the 6 percent capital gains tax based on the applicable selling price or fair market value. BIR Form 1706 specifically applies to taxable transfers of Philippine real property classified as capital assets.
Death therefore does not make the eventual Philippine property sale tax disappear.
Borrowing can still be smart
None of this means borrowing against property is necessarily a bad strategy.
Consider an entrepreneur with P100 million of land who needs P30 million to expand a profitable business. Selling the entire property simply to raise P30 million may make little sense.
If the business can earn 15 percent on the additional capital while borrowing costs 7 percent, retaining the property and borrowing against it could be economically attractive.
Likewise, an investor may expect the property to appreciate considerably over time and prefer not to give up that future upside.
In those cases, however, the rationale is not “borrow because loans aren’t taxable.” The rationale is that the expected return from retaining the asset and using borrowed capital exceeds the cost and risk of the debt.
That is an investment decision, not a tax loophole. There is no free P60 million
This is the part that tends to disappear from a 30 second social media video.
A person with a P100 million property who borrows P60 million has not discovered a way to spend P60 million tax free. The person has pledged a valuable asset and assumed P60 million of debt.
The borrower gets liquidity without selling. In return, the bank gets interest and security over the property.
If everything goes well, the property continues to appreciate, the borrower has sufficient cash flow to service the debt and the borrowed capital is put to productive use.
If things go badly, the interest continues to accumulate, refinancing may become difficult and the asset the owner originally refused to sell can ultimately be put at risk through foreclosure.
The lesson from “buy, borrow, die” is therefore not that borrowing against assets is a secret way for wealthy Filipinos to avoid taxes.
It is that debt can provide liquidity without requiring an asset to be sold. Whether that is smart depends on what happens next: how much is borrowed, what the money earns, how much interest costs, whether the borrower can service the debt and what happens to the collateral if the plan fails. Taxes are only one part of that calculation.
