AAnswer: Italian successions are subject to two Italian inheritance taxes: Estate Tax and Property Transfer Tax, as follows.
In the succession of a non Italian resident inheritance taxes apply only to the assets present in Italy. In the succession of an Italian resident Italian inheritance taxes apply to all the assets of the deceased worldwide. A tax credit might be applicable for inheritance taxes paid overseas.
Estate tax applies to the entire estate net value, including movable and immovable assets. Rates depend on the relationship of the beneficiary with the deceased:
- Spouses and children: 4% of the estate value, with an allowance of EUR 1 million for each beneficiary;
- Siblings and close relatives (up to fourth degree of kinship): 6%. Each sibling is entitled to an allowance of EUR 100,000;
- Any other subject: 8%, without allowance.
Property Transfer Tax.
When an Italian property is involved, the succession is also subject to property inheritance transfer taxes (aggregate rate 3% of the property value on record, in Italian “Valore Catastale“, which typically is 30%-40% lower than the actual property market value).
Exceptions and Reductions
Some assets are not subject to inheritance estate tax at all, such as Italian Treasury bonds and life insurance.
Also, if certain criteria are met, it is possible to neutralize the above mentioned 3% property transfer tax. For instance, if the beneficiary is an Italian citizen living abroad without other properties in Italy, or if the beneficiary will use the property as primary residence.
Further reductions might apply in other cases, such as when a succession includes assets coming from a previous succession. In this case it might be possible to deduct from the inheritance estate tax due for the second succession a portion of the taxes paid for the previous one and save up to 50%.
Here you can find a chart summarizing the main Italian inheritance taxes with respect to standard inheritance cases involving Italian properties. The chart shows that Italian inheritance taxes vary depending on specific circumstances:
- relation between the deceased and the inheritor
- estate value
- how inheritors will use the property
In particular, it shows that under certain circumstances, no proportional inheritance transfer tax applies.
1. Inheriting from Spouse, Parent, Grandparent, or Child
The inheritance transfer is subject to 4% inheritance tax on the value exceeding EUR 1 million, in addition to 3% registration tax on the basis of property value on record.
If the value of the inherited estate (or property share) is lower than EUR 1 million, the succession is subject to only 3% property transfer tax. If the inheritor lives in the property, total taxes applicable to the succession would be EUR 400.
2. Inheriting from Sibling, Uncle or Aunt
When you inherit from a sibling, uncle or Aunt, there is 6% inheritance estate tax. For each sibling (not uncle or aunt), the 6% tax applies in excess of EUR 100,000. The first EUR 100,000 is estate tax free.
Additionally, a 3% registration tax applies on the basis of property value on record (if a property is involved).
Therefore, for the inheritance from a sibling, if the value of the inheritance share is lower than EUR 100,000, there is no estate tax, only property title transfer tax.
If the Italian property is used as the heir/beneficiary’s primary home, or the heir moves to the area where the property is located within 18 months, or lives or works in the same township (Comune) at the time of transfer, or if the heir is an Italian citizen living abroad (registered with A.I.R.E.), the 3% transfer tax above can be replaced by a flat tax equal to EUR 400 (a specific application is required before paying succession taxes and before filing the declaration of succession).
As is typical with Italian law, inheritance tax laws have been modified several times over the past years and further amendments in the near future cannot be excluded.
Follow us on LinkedIn for more on this topic
Copyright of Studio Legale Metta – Bari (Italy).