Inheritance tax in Italy: protecting your Italian estate against inheritance tax increase
Italy is one of the countries where inheritance tax is relatively low. However, the huge need for liquidity, as a result of the current COVID-19 health crisis, may lead the government to increasing inheritance tax.
Basic inheritance tax in Italy (Imposta sulle Successioni) equates to 8% of the estate, but drops to 6% between siblings, relatives up to the fourth degree (cousins) and relatives up to the third degree (for example, a spouse’s uncle), and 4% in the case of direct heirs (children, spouse, civil partner).
In the case of siblings, there is an amount on which no taxes are paid: €100,000 per sibling is tax exempt. This amount rises to €1 million in the case of spouse and relatives in a straight line. In a nutshell, a large portion of the inheritance you leave in Italy is exempt from tax.
INHERITANCE TAXES IN ITALY
| Heir | Rate (Aliquota) | Exemption up to |
| Spouse, relatives in a straight line (parents, grandparents, children, children’s children…) | 4% | 1.000.000 euro |
| Brothers and sisters | 6% | 100.000 euro |
| Other relatives up to grade 4, related in a straight line, related in a collateral line up to grade 3 | 6% | No exemption |
| Other subjects | 8% | No exemption |
Sore point: Italian properties are always subject to some tax (transcription and cadastral) up to a maximum of 3%. If the property is a main residence, it drops to Euro 200 for both transcription and cadastral taxes. Italian government bonds and all similar government bonds are exempt from taxation.
Inheritance tax in Italy in the case of succession
In the case of succession, Italian inheritance tax payment should occur when lodging a, “succession declaration” (Dichiarazione di successione) with the Italian Inland Revenue Agency. The succession declaration must be submitted within 12 months of the opening of the grant of probate procedure, which usually coincides with the testator’s death.
There is no obligation to file a succession declaration if the estate does not contain any properties or if the assets are valued at less than Euro 100,000 and are left to the spouse or relatives in a straight line. The tax base is the total net value of the assets (net, so the debts are subtracted, too). The value of the properties is calculated by multiplying the revalued cadastral incomes by 5% by the relevant coefficients (for instance, 110 for a main residence).
Inheritance tax in Italy: mortgage and cadastral taxes
Properties are subject to mortgage and cadastral taxes, respectively equal to 2% and 1% on the cadastral value of the property. In the event that at least one of the heirs can claim the benefits of the purchase of the first home, these taxes are due at a fixed rate of Euro 200 each. The deductibles do not operate for mortgage tax purposes.
Please note : in the event that the beneficiary is severely handicapped pursuant to Law 5/2/92 no. 104, an exemption of up to Euro 1,500,000 applies. Kinship relationships: 1st degree with parent and child; 2nd degree with grandfather, grandson, brother and sister; 3rd degree with great-grandfather, great-granddaughter, uncle; 4th degree with 1st cousin, great-uncle, etc …
The best strategy that we can recommend to property owners in Italy to avoid a possible increase in inheritance tax is the following: in case of very close relatives, it is advisable to make a gift deed as soon as possible, in order to take advantage of the current deductibles which are very high and therefore advantageous.
As you can see, estate planning relating to inheritance taxes in Italy, may be very confusing. If you own a property in Italy and would like to know more about the topic, get in contact with one of our legal experts.