Italian Inheritance Tax
Italian inheritance law is founded on the principle of ‘unity of inheritance’, which means that any non-property assets are dealt with under the law of the country of last domicile, and property assets must be handled according to the law of the country where the property is located.
A new EU ruling in 2015 did however amend this hard and fast rule, in as much as it is now possible for non-Italian residents to stipulate via an Italian will that they wish for the law of their own country to apply when distributing their Italy-based assets on their death.
If you own assets located in Italy therefore, it is imperative you are clear on how Italian inheritance law works, and on what the likely implications are for your heirs concerning Italian inheritance tax.
Giambrone Law is an internationally respected law firm with offices across Europe, including Italy and the UK. Our depth of knowledge surrounding Italian inheritance law and the associated tax system is extensive. Advice is delivered to our clients in fluent English with a focus on making it as straightforward as possible.
We have compiled the following information to help you find your way around the most commonly asked questions concerning Italian inheritance tax and succession law, and of course we are readily available on a one-to-one basis should you require assistance with any particular matter.
What are the main differences between UK and Italian inheritance law?
In the UK, inheritance law offers flexibility in as much as you are able to will your estate to whoever you please. This testamentary freedom does not exist however under Italian inheritance law.
Italian law dictates that when someone dies, certain members of their family have a right to inherit a share of their estate. The law of ‘forced heirship’ will apply if there is no will, or where a will is ruled invalid and, unless stipulated otherwise in an Italian will, this law also applies. In August 2015 however, newly introduced European Commission regulations meant that, providing they were citizens of EU member states, non-Italian residents were allowed to choose to stipulate in their Italian will that their fixed assets should be dealt with according to the law of their own national country.
This new European Succession Regulation was introduced with the goal of simplifying cross-border succession. It did not, however, have any bearing on Italian inheritance tax, which could still be payable by non-residents on any assets located in Italy.
Is my English will valid in Italy, or should I make an Italian will?
For those with fixed assets such as land or property situated in Italy, or for non-nationals who have made Italy their permanent home, it is good advice to make an Italian will. Whilst a UK will is valid in Italy, it would have to be authenticated by an Italian Notary Public before probate can proceed. Numerous challenges can and do surface when dealing with foreign language wills and all the associated documents have to be officially translated into Italian. The cost of this is usually higher than drafting an Italian will in the first place.
It is best practice to create independent wills in each country where assets are owned, although ensuring that the wills do not conflict or revoke each other is very important.
Additionally, if you have an Italian will, then it could result in a reduced liability for Italian inheritance tax, as well as reducing the likelihood of disputes between beneficiaries and making it clear to the Italian authorities as to how you wish for your assets to be bequeathed.
Is Italian inheritance tax payable by everyone, or are there exceptions?
Italian inheritance tax (Imposta sulle Successioni) is payable by anyone who resided in Italy, and applies to all the worldwide assets that belonged to the deceased.
In the case of non-residents, Italian inheritance tax still remains payable, however it is only calculated on the assets situated in Italy. There are various cross-border agreements in place, including with the UK, that prevent the double taxation of estates, which is why engaging the expert assistance of an experienced cross-border inheritance law specialist is so important to ensure no more tax than necessary is paid by your beneficiaries.
If an estate includes a business, or a significant shareholding in a company, then these assets will not be taxed if they are passed to the deceased’s children, providing the children continue the business or take control of the company for a minimum of five years.
What are the rates of Italian inheritance tax?
There are two types of taxes payable under Italian inheritance law.
The first is estate tax (Imposta di Successione). This applies to the full net value of the estate, including fixed and non-fixed assets. The rate of estate tax varies according to the relationship with the beneficiary. Children and spouses have a generous allowance of €1 million before they have to pay any estate tax, which is then levied at 4 per cent. In the case of disabled children, the allowance rises to €1,500,000.
Siblings have a €100,000 allowance, after which they must pay the estate tax at six per cent. Family members up to the fourth level of kinship and other blood, marriage or adopted relatives up to the third degree of kinship pay six per cent, with no exemption. Everyone else is liable to pay eight per cent, with no exemption.
The second tax payable under an Italian inheritance is property transfer tax (Imposta Catastale), which is applicable when there is a property located in Italy to be transferred. This is charged at an aggregate rate of three per cent of the property value on record, ‘Valore Catastale’, which is usually in the region of 30 to 40 per cent lower than the market value. There is also a mortgage tax payable at two per cent of the property value on record, or €200 if the property will remain the primary residence of the beneficiary.
Is everything inherited liable to Italian inheritance tax?
Not everything is taxable under Italian inheritance law. Real estate, private bonds, shares or equity in a non-family business, managed funds, trust assets, savings and bank accounts, jewellery and furniture are taxable assets. Unit linked whole of life policies, government bonds and shares or equity in a family business are not, however.
If you have made a will in the UK, you will not necessarily avoid Italian inheritance tax. It is also important to be aware that even if no inheritance tax is due, an Italian inheritance tax return must still be submitted within one year from the date of death.
Who has to pay the Italian inheritance tax, and how is it paid?
The beneficiaries of Italy-based assets will be required to obtain an Italian Grant of Probate (Dichiarazione di Successione) so that assets can be released to them. This must be done within one year of the date of death. Once completed, the application is sent to the Italian tax authority at which point the beneficiaries are asked to pay any Italian inheritance tax due. The assets of the estate cannot be distributed until the tax is paid.
Will my beneficiaries have to settle inherited debts?
Italian inheritance law dictates that when beneficiaries inherit an estate, as well as being entitled to the assets within that estate, they also become responsible for the deceased’s debts and liabilities. Should those debts and liabilities exceed the assets, the beneficiaries are able to decline the estate in its entirety.
An Italian inheritance law specialist will be able to calculate the potential gains or losses to be made on an estate before a beneficiary decides whether to accept it. If they do not accept their inheritance, then the estate will fall to the next in line to inherit.
How can I minimise the Italian inheritance tax payable by my beneficiaries?
By making an Italian will, you have the opportunity to legally mitigate the amount of tax payable by your beneficiaries on your death. Whilst doing so, engaging the specialist assistance of an estate planning lawyer with an in-depth, native knowledge of the Italian tax system will usually prove an astute decision.
Estate planning measures will need to follow well-planned strategies, so that should there be changes in Italian inheritance law, they will still have the desired effect. Options may be including a potential beneficiary on the title deed at the time of purchasing a property in Italy. It could be that you as the investor in the property own a life interest in it, whilst the beneficiary owns the remainder interest. This will result in an automatic transfer of full ownership to your beneficiary when you die.
Other options at the time of purchase may include buying through a company.
If you have already purchased your property then there may be other structures that will help to minimise taxes. It goes without saying that expert advice of the highest calibre from fluent English speaking Italian inheritance lawyers with an exceptional level of technical understanding of the various legal options available to you, and their suitability for your individual circumstances, is vital.
For expert guidance on Italian inheritance tax, Giambrone’s dedicated English speaking specialists based both in the UK and in Italy will be able to guide you according to the regional, national and EU laws that apply, whether you are a beneficiary or the owner or potential owner of assets in Italy. To discuss your enquiry on an individual basis, please get in touch. We look forward to assisting you.
Note: The tax rates and reliefs quoted in this article were correct at the time of publishing, but these and applicable laws may change. It is essential therefore to seek tailored advice, and not to be reliant on or base any action on any of the information contained in this article.