Italian residents may face a higher tax burden on their lifetime income, but their family is taxed very lightly on death compared to most other European countries.
Different rates of Italian inheritance tax are applied depending on the family relationship the heir to each asset had to the deceased.
Any legacy or gift passing to “direct-line” family members (parent, spouse or children or grandchildren) is exempt from Italian inheritance tax up to the threshold of 1 million Euro per heir. If the family member has a serious disability the threshold increases to 1.5 million Euro. Thereafter the surplus will be taxed at only 4%.
In order to calculate inheritance tax on real estate in Italy the market value is not considered, but the much lower “valore catastale” (roughly equivalent to the rateable value). As a result of this, in order to reach the 1 million threshold to be liable or tax, the estate passing to spouse and/or children close family would usually need to include substantial financial assets or investments as well as property.
Inheritance tax on assets passing to siblings is taxed at 6%, over a threshold of Euro 100.000 per heir. Inheritance tax for all other family members is charged at 6% on their share of the estate, with no threshhold. Inheritance tax for any other person who is not a relative of the deceased is charged at 8%, also with no threshold.
Inheritance tax is payable on receiving notice from the Agenzia delle Entrate after the declaration of succession is filed. In addition, real estate property situated in Italy is also subject to two Land Registry taxes “imposte di registro” of 1% and 2% of the valore catastale. These are payable at the moment of filing the succession.
The value of any financial assets is subject to an uplift of 10% before tax is applied to the total value. This is due to the “presumption” that aside from financial investments a person will also own items of value, for example jewellery, paintings, or antique furniture, which are not included in the declaration of succession.
If the deceased is tax-resident in Italy (meaning that they have had their “residenza” registered at the Anagrafe of their Comune for at least 6 months in the past financial year of January to December), their heirs are required to declare the total value of their worldwide estate in the declaration of succession. Property owned outside Italy would be declared on its market value at the time of death.
It is highly likely that if the deceased owned assets in multiple countries, inheritance tax will also be payable in the country where each asset is situated. Many countries have a Double Tax treaty in place which will ensure relief will be granted in one country on the inheritance tax (if any) paid in the other.
Here is an example of a fairly straighforward situation in which the deceased, a resident of Italy and domiciled in Italy, owned real estate and a bank account and investments in the United Kingdom, as well as a home and a bank account in Italy. The deceased’s only heirs are two adult children.
Property in Devon, UK – value £500.000 (approx 600.000 Euro)
Investments in a portfolio in London UK worth £1.000.000 (approx Euro1.200.000)
Bank account with a balance of £80.000 (Euro 100.000)
Main home in Umbria, Italy – market value Euro 500.000 – valore catastale Euro 200.000.
Bank account in Perugia, Italy – balance at death Euro 400.000
A declaration of succession in Italy would need to include a description and value for each of these assets. The total value of the worldwide estate is Euro 2.500.000.
Tax payable in Italy
3% Land Registry tax on the valore catastale of the Umbria property
All financial assets worldwide subject to 10% uplift
Children liable to 4% inheritance tax only on the surplus over 2 million (they have 1 million threshold each)
Tax payable in the UK
On the assumption that the deceased is considered by the HMRC to be permanently domiciled in Italy (on the English law definition of “domicile of origin” or “domicile of choice”), IHT would only be payable in the UK on the London real estate property and UK bank accounts and investments at 40% of the market value exceeding £325,000. As the inheritance tax in the UK will be far hight than in Italy, the UK tax is likely to be reduced by the amount paid in Italy.
Filing the declaration of succession
A declaration of succession in Italy is filed telematically by an intermediary registered with the Agenzia delle Entrate such as an accountant, Notary, lawyer or geometra.