SHARE
COPY LINK

TAX

Why Italy’s inheritance taxes aren’t as high as you might expect

Inheritance taxation in Italy is much more advantageous than in other European countries. In fact, it ranges from 4% to 8% - and in many cases is not even applicable. But what exactly is the inheritance tax and how does it work in Italy? Tuscany-based tax experts MGI Vannucci e Associati explain.

Why Italy's inheritance taxes aren't as high as you might expect
Property and other assets are often passed down through the generations in Italy, and inheritance tax rules are favourable. Photo: AFP

Inheritance tax must be paid by residents in Italy under certain conditions, that will be described below, when they inherit property – both real estate and movable property – wherever this heritage may be located (therefore also on assets held abroad).

The Italian inheritance tax concerns not only the assets of Italian citizens, but also all assets, in Italy and abroad, of foreign citizens if they have their tax residency in Italy at the time of their death.
 
On the other hand, the Italian inheritance tax is calculated only on assets located in Italy if the deceased, whatever their citizenship, is not a tax resident in Italy at the time of their death.
 
The Italian law governing inheritance tax provides for different taxation depending on who is receiving the inheritance, and there are some cases in which no tax is due. 
 
In particular:
  • If the heirs are the spouse, children, or other relatives in a direct line (father, mother, grandchildren), a one million euro deductible is provided for each heir under which no tax is due; 4% tax is due on the part exceeding one million euros;
  • If the heirs are brothers or sisters, there is a 100,000 euro deductible under which no tax is due; a tax of 6% is due on the part exceeding 100,000 euros;
  • If the heirs are relatives other than those indicated above, there is no limit on taxation up to the fourth degree of relationship, and the inheritance received is taxed at 6%;
  • For all the other heirs, there is no limit on the taxation and the inheritance received is taxed at 8%
  • Furthermore, if the heir is a disabled person, the deductible under which no tax is due rises to 1.5 million euros.
For example, assuming that an Italian resident with a patrimony of four million euros dies, leaving his wife and two children as his heirs, with the patrimony shared equally among them, the following taxation occurs: 
 
Each heir receives a fortune of 1.33 million euros (1/3 of 4 million). Since the heirs are the spouse and the two children, the exemption allowance of one million euros applies to each of them, and 4% is applied to the surplus. So each has to pay 13,333 Euros (4% of 333,333 euros). 
 
Therefore, on a total inheritance of 4 million, the inheritance tax to be paid is equal to 40,000 euros (with an incidence of only 1% on the total inherited assets).
 
The following table offers a summary:
 
 
If real estate located in Italy is included among the assets to be inherited, the mortgage tax of 2% and the cadastral tax of 1% is due, without any benefit from deductible exemptions.
 
Therefore, in the event that real estate located in Italy is inherited, there is still a 3% tax burden to be applied. This is, however, on the cadastral value of the asset, which currently in Italy is generally much lower than the market value.
 
 
 
Photo: AFP
 
As we have already said, in cases where the inheritance tax is due in Italy, the assets held in foreign countries must also be calculated. 
 
In this case, it is probable that, for assets located abroad, an inheritance taxation will most likely also apply in the country in which these assets are located. In this case there is thus the risk that a hypothesis of double taxation is generated. 
 
According to Italian legislation, where inheritance tax has been applied to the same asset abroad, said foreign tax can be deducted from the tax to be paid in Italy. 
 
In addition, Italy has signed bilateral agreements aimed at eliminating double taxation in matters of succession with the following countries: Denmark, France, the United Kingdom, Greece, Israel, the United States of America, and Sweden.
 
READ ALSO:

 

Finally, we should draw attention to the fact that, in the presence of assets worth more than 100,000 euros, or in any case in the presence of properties (whatever the value) that have fallen into succession in Italy, a specific declaration of succession must be presented. It is advisable to contact specialized professionals for this requirement.
 
Taxation on inheritance in Italy is certainly very “generous” compared to what happens in other countries. 
 
For this reason, for some years now there have been discussions in Italy of revising this tax, providing for an increase. In this sense, legislative proposals have been promoted aimed at increasing the rates and reducing the exemptions on succession tax. 
 
At the moment, however, the taxation applicable to successions in Italy is as described in this article.
 
MGI Vannucci e Associati are a team of English-speaking chartered accountants and tax experts based in Tuscany, Italy.

READ ALSO: The real cost of buying a house in Italy as a foreigner

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.

MONEY

How much does it cost to raise a child in Italy?

How big is the financial commitment parents have to make in Italy to pay for their offspring’s needs and expenses until they’re grown up and independent? Here's a look at the predicted costs.

How much does it cost to raise a child in Italy?

Family is the bedrock of Italian society, but it’s also an unbalanced economic crutch, propping up children who leave home much later than most of their European counterparts.

Various factors are at play, from a declining birth rate, youth unemployment, being unable to get on the property ladder to young Italians moving abroad in search of better financial opportunities.

It probably comes as little shock, then, that parents in Italy end up forking out huge sums of cash to support their offspring through childhood and early adulthood (and beyond).

Even just up to the age of 18, raising a child in Italy can cost upwards of €320,000, according to data from Italian consumer research body ONF (Osservatorio Nazionale Federconsumatori).

The average spend of raising a child from 0-18 years is €175,642, but it rises in families with high incomes, classed as over €70,000 per year.

READ ALSO: Italian class sizes set to shrink as population falls further

Researchers noted that the cost of bringing up children has jumped up following the effects of the pandemic too: compared to 2018, child-rearing expenses increased by 1.2 percent by 2020.

The decrease in expenditure related to transport due to spending more time at home, as well as those incurred for sports and leisure activities, was not enough to mitigate the increase in costs for housing and utilities, which increased by 12 percent compared to 2018.

Photo by Suzanne Emily O’Connor on Unsplash

Food prices rose by 8 percent compared to 2018 and education and care jumped by 6 percent for the same timeframe.

In fact, Italy ranks as the third most expensive country in the world for raising children, only coming behind South Korea and China, according to data from investment bank JEF.

The pandemic has contributed to extending an already growing phenomenon: the decrease in annual income of Italian households.

Household income dropped by 2.8 percent from 2019 to 2020, the report found, citing data from national statistics agency Istat. It marks a further squeeze for families, especially low-income and single-parent families.

Depending on earnings, the amount needed to bring up a child until the age of 18 varies considerably.

READ ALSO: ‘Kids are adored here’: What being a parent in Italy is really like

A two-parent family with an annual income of €22,500 spends an average of €118,234.15 to bring up a child until the age of 18; for the same type of family but with an average income of €34,000 per year, the total expenditure to bring up a child increases to €175,642.72.

For high-income families, stated as over €70,000 annually, raising a child costs €321,617.36 on average.

The figures mark an increase of around €5,000 for low- and middle-income families, and a much sharper rise of €50,000 for high-income families, compared to ten years ago.

The money gets spent on housing, food, clothing, health, education and ‘other’ categories. The report revealed that the average spend on a child aged 16 years old is almost €11,500 annually, amounting to €955.78 per month.

Almost €2,000 per year gets spent on food, €1,615 goes on transport and communication, €782 goes on clothing and €1,600 goes on education annually, the report found.

They begin small, yet the costs are anything but. (Photo by LOIC VENANCE / AFP)

For the ONF, “these data highlight how, today more than ever, having a child is becoming a luxury reserved for the few, which fewer and fewer Italians are able to afford.”

READ ALSO:

The numbers on supporting children after their 18th birthday are a little hazier, as when children eventually fly the nest varies – but figures from Eurostat show that Italy ranks third in Europe for the average oldest age at which children move out of the parental home, at 30.2 years old.

Only young people from Croatia and Slovakia wait longer to live independently, while the EU average for flying the nest is 26.4 years old.

Even then after eventually leaving home at over 30 years old, it’s not entirely clear how many Italians are fully independent once they get their own address, or whether their parents continue to bankroll their living costs.

Italy’s president Sergio Mattarella sent a message to Italy’s Birth Foundation (Fondazione per la Natalità) in May stating, “The demographic structure of the country suffers from serious imbalances that significantly affect the development of our society.”

In response to worsening economic circumstances, the Italian government has recently pledged to do more to help people have families and reverse Italy’s continuing declining birth rate.

It has introduced the Single Universal Allowance (L’assegno unico e universale), but along with it has dropped various so-called ‘baby bonuses’ that provided lump sums to new parents.

The new allowance is a monthly means-tested benefit for those who have children, or are about to have a child. It is payable from the seventh month of pregnancy until the child reaches the age of 18 or in some cases, 21. For more information on what it is and how to claim it, see here.

SHOW COMMENTS