A brief and informal guide to the Inheritance Tax in Italy.
Inheritance tax rates and specificities differ from country to country, so here’s a brief and informal guide to the Italian Inheritance Tax as it compares with other countries.
What is taxed
There are only a handful of goods or possessions that are deemed taxable, in the succession process. Houses, apartments and land, financial affairs such as trust funds, bank accounts, savings and bonds, as well as jewels and furniture are considered taxable under Italian inheritance laws.
How the Italian inheritance tax works
Italy has a very low inheritance tax rate compared to most countries. While Japan tops the chart at a rate of 55%, and the U.S. and U.K. a slightly lower 40%, Italy only requires 4% of inherited assets for recipients in the first degree of relation. There are fifteen countries belonging to the Organisation for Economic Cooperation and Development (OECD) who levy no taxes on estates, and “thirteen countries or jurisdictions have repealed their estate or inheritance taxes since 2000” (Tax Foundation).
In Italy, assets are only taxable when they exceed a certain monetary value, and the tax applies to assets both in Italy and elsewhere if the deceased was residing in the country. In the case of non-residency, inherited property in Italy is still taxable.
Taxation rates increase as the relation to the deceased is further removed. For surviving spouses, children and parents taxations is 4% on assets over €1,000,000 in value. This is a lofty threshold, but this criterion may be a relief to a single parent supporting children after the death of their spouse.
Siblings of the deceased are required to pay 6% of assets over €100,000 and is determined individually based on the inheritance of each sibling.
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Cousins, nieces, brother-in-laws, and grand-nephews, are just some examples of relatives that comply with the category of “other relatives.” These beneficiaries must be related to the deceased up to the fourth degree by marriage or blood and must pay 6% without an allowance like closer linked relatives.
The last bracket fits other recipients who are not related or hold the most distant relation to the deceased – they pay 8% of assets without any allowance. In this category there is an exception: if one or more unrelated beneficiaries is a disabled child, their inheritance is tax free up to €1,500,000.
There are two more taxes that are added to the grand total, and those are mortgage (2%) and cadastral (1%). These regard real estate value and apply to all heirs.
Many lawyers would advise benefactors to create a detailed list declaring all assets and where they will be allocated after death. This prevents the Italian Revenue Office from presumptively taxing all beneficiaries across categories 10% of assets inherited.
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This “presumption” is made in the absence of a complete list of assets in order to account for undeclared jewelry or household furniture that may be of value. To avoid this, it is advisable that benefactors compose a very specific ledger where they can keep track of their possessions – this may even make allocating certain items and heirlooms a bit easier once everything is written down.
Let’s make an example:
If you are the spouse of the deceased and you inherit €1,200,000, you are only required to pay taxes on €200,000 of your share, since there is a €1,000,000 allowance for spouses, parents and children. Of the taxable sum, €8,000 would cover the 4% inheritance tax, €4,000 would need to be paid as mortgage tax (2%), and €2,000 would be needed for the cadastral tax (1%), bringing the total to €14,000 in succession taxes. It is important to remember that without the comprehensive list of assets you would need to pay €20,000 under the 10% presumption.
There are many other aspects to the succession process that may require legal assistance, especially if you do not speak Italian. Grieving is a difficult process and dividing property and wealth might be the last thing on a family’s to-do list in the event of a death.
There are numerous resources from legal groups as well as English speaking Italian lawyers, who are familiar with the Italian system and can assist in the stressful and uncomfortable situations regarding inheritance and even will construction.
Whether you inherit the villa your family used to vacation at, or you receive a fortune from a distant and mysterious relative, understanding the rules and expectations for Italian inheritance can make the process just a bit easier.
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