Italy’s Inheritance taxes are about to change
Are you aware of Italy’s Inheritance tax regime?
Most countries these days have inheritance or death taxes (some call them Estate taxes or taxes on succession). Italy’s “Imposte di Successione” was re-introduced in 2006 and to this day is not considered as harsh as some other EU countries. However many Italian residents are unaware of how it operates and how it is likely to change.
How does the tax operate?
Currently in Italy, in the specific case where the deceased’s assets are passed to their own children or their husband/wife, inheritance taxes are payable at the rate of 4% of the amount of total taxable assets above the threshold of €1 million (including all properties). Many Italian residents own property and property is taxed uniquely after death in Italy. The family home is subject to a separate, fixed tax of €336. However, all other owned property aside from the family home (for example the Casa del mare) is subject to both Stamp Duty (2%) and Land Taxes (1%) applied to total property value at time of death. These property taxes have no minimum thresholds and so the accumulated 3% additional tax is payable from 1 euro in property value.
When other beneficiaries exist….
When the deceased’s assets are passed to other family members or third parties, this €1 mill threshold does not apply. A lower threshold of €100,000 applies if the beneficiaries are direct siblings and no tax-free threshold applies when assets are passed to any other person. The tax rate also rises to either 6% or 8% of the value of all assets, depending upon the closeness of the familial relationship with the beneficiary. For example, money or assets passed from an uncle are taxed at 6% on the total amount and any assets passed between siblings are taxed at 6% of the excess over the €100k threshold. In most other cases the rate will be 8% with no tax free threshold.
What is taxed upon death in Italy?
Inheritance tax applies to the following categories of assets (and remember that property is taxed further, as explained above);
- Real estate
- Private bonds (not government bonds)
- Equity or shares in a non-family business
- Managed Funds
- Savings and bank accounts
- Furniture, jewelry
- Trust assets
Which assets are not subject to the inheritance tax regime in Italy?
At present, the following are not currently taxed upon death;
- Life Insurance Policies – unit linked whole of Life policies.
- Government bonds.
- Family business shareholdings.
Clients need to know that having a will prepared in another country will not necessarily avoid the “Imposte di Successione” in Italy.
Rumours and hearsay
The latest rumours about the government’s agenda are that the “Imposte di Successione” is about to change. Experts are tipping an increase in the tax rates or a reduction in the tax-free thresholds, or both. This is one of the few remaining areas where the State can claim that taxes are relatively low and that any increases in tax in this area for Italian residents is merely an “equalising” measure, designed to align Italy more closely to the inheritance tax regimes that currently exist in other EU states. In a future article I will be summarising for you the proposed changes to the “Imposte di Successione”, so stay tuned for an update after summer.
Planning for change
The current situation and rumoured tax changes indicate that succession taxes are becoming more relevant and of concern to many more families. It’s clear that for different reasons it’s becoming more important to review the balance of your assets in different categories, especially if you have children or stand to inherit assets from an estate with Italian assets. Italian Notaries have indicated that more families are considering changes or making changes to protect assets and are planning more carefully for the transition of assets within the family. Whole of life Insurance products as a home for investments is growing in popularity. There are important planning actions that you can take to limit the impact of Italian inheritance tax on family assets. Please contact me if you have inheritance tax concerns or would like to receive a fact sheet summarising inheritance taxes in Italy today.
*please note: the inheritance tax facts and interpretations above are based on the author’s current understanding of the Law, and as supplied by Legal and General International (Ireland) Limited. The information contained herein is general in nature and not advice specific to your own individual circumstances. You should seek advice tailored to your own specific circumstances before taking any action based upon the information contained herein.