Inheritance Tax in Italy
By Gareth Horsfall
This article is published on: 14th January 2015
You may not be aware but from an Inheritance tax point of view, Italy is actually considered a bit of a fiscal paradise (after you have picked yourself up off the floor because I just called Italy a ‘fiscal paradise’, you might want to read on). If your estate or part of it is likely to be subject to Italian Inheritance Tax on your death then the latest developments could interest you.
Italian Inheritance tax law dates back to the Napoleonic period which requires parents, on death, to leave a major proportion of their wealth to their children instead of just their spouse.
At the moment Italy’s Inheritance tax works as follows:
* If the estate is passed to your spouse or relatives in a direct line (i.e children) then they are required to pay 4% on the value of the inheritance that exceeds € 1million.
* Brothers and sisters must pay 6% with an allowance of €100,000
* Other relatives must pay 8% but without any allowance.
Despite Italy having approximately 1.5 million people who are subject to Inheritance tax each year with a combined value of approximately €56 billion, the tax collection is relatively small due to the high allowances and also the fact that that ‘successione’ for a property is based on the catastale value, not the market value.
WHAT ARE THE PROPOSED CHANGES?
Italy, like most other countries, is in desperate need of cash and they naturally see inheritance tax as a way of increasing tax revenues. In addition, the EU is encouraging Italy to review the present system to bring it into line with other, ‘less financially rewarding’, European countries.
The ideas, which are just ideas at this stage, are as follows:
* For spouse and direct line relatives, to increase the taxable rate to 5%. But, reduce the non-taxable allowance from €1 million to €200,000.
* Whilst the taxable rate will rise from 6 to 8% for brothers and sisters, and the allowance will reduce to between €50,000 and €100,000.
* The rates for other relatives will likely increase to 8% without any allowance.
This means that a lot of people will now be caught in the Italian Inheritance tax trap whereas previously they might not have been. Although, it should be said, the rates are still quite low.
However, as part of any inheritance tax /succession planning that you may undertake you may want to look at ways in which you can hold any asset, in a more tax efficient way. The polizza assicurativa (or Life Assurance Bond) meets exactly that criteria.
Any money that you hold in one of these tax efficient accounts is completely free from Italian Inheritance tax and is kept outside of the estate when the value is calculated. The not so good news is that if the majority of your estate is in your property, unfortunately, this cannot be placed inside the tax protective structure. However any other invested/investable assets can be, generally, from €50,000 upwards.
One of the great advantages is that there is no upper limit to contributions. You can protect a large part of your estate from Italian Inheritance tax easily and with maximum flexibility to access the capital and any income from it during your lifetime. The other big advantage is that the monies (whilst held inside the account) are not subject to Italian income and capital gains tax.