If you own assets in Italy (Rome, Milan, etc.) or are expected to inherit assets in this country, it’s important to understand the legal implications involved in the inheritance process, as even non-residents may be required to pay taxes according to local law.
In Italy, there are complex rules for the taxation of inheritances and gifts, with significant implications for heirs of assets. Early understanding of Italian law and advance planning of wills, residency, and gifts during lifetime can significantly reduce exposure to tax payments when transferring assets between generations.
Beyond that, inheritance tax planning can prevent legal disputes, delays in the inheritance process, and unexpected demands from various authorities.
What’s the Difference Between Inheritance Tax and Estate Tax?
- Estate Tax – Imposed on the deceased’s assets before they are transferred to the heirs.
- Inheritance Tax – Applies to all assets received by an heir.
Inheritance Tax in Italy – What You Need to Know?
In Italy, there is no estate tax, but there is an inheritance tax imposed on each heir separately, according to the value of the inherited assets. Inheritance tax in Italy is calculated based on the market value of the inheritance received by each heir.
Italian inheritance tax applies to worldwide assets when the deceased was an Italian tax resident, and applies to assets in Italy when the deceased was a non-resident. This means that Italian inheritance tax applies to all types of assets located in Italy, regardless of the heir’s place of residence.
Inheritance Tax Rates in Italy
- Spouses, children, grandchildren, and parents – enjoy an exemption of one million euros per heir, with the remainder taxed at a fixed rate of 4%.
- Siblings – enjoy an exemption of 100,000 euros per heir, with the remainder taxed at a rate of 6%.
- Other relatives up to the fourth degree – the entire value of the inheritance is taxed at a rate of 6%.
- Others – the entire value of the inheritance is taxed at a rate of 8%.
Gift Tax
Gift tax is an important part of planning for the transfer of assets between generations. Often, when property owners are exposed to the amount of inheritance tax, the option of transferring assets as gifts during the testator’s lifetime arises, with the thought that this is preferable to inheriting in the future. However, it should be taken into account that gifts may be taxable at the same or even higher rates than the inheritance tax rates.
In Italy, the gift tax rate is identical to the inheritance tax rate. Also, like inheritance tax, gift tax is calculated according to the relationship between the giver and the recipient.
Therefore, early planning for inheritance tax and gift tax is essential when transferring assets between generations. Proper planning allows you to maximize existing exemptions, significantly reduce tax liability, and ensure that assets are transferred to the next generation in an orderly and efficient manner.
Inheritance Taxation in Israel Compared to Italy
In Israel, unlike Italy, there is no estate tax or inheritance tax. However, in certain cases, tax may be imposed on the full value of the inheritance received, such as capital gains tax when selling the asset.
The tax treaty between Israel and Italy includes provisions that can prevent double taxation. Still, it’s important to plan the reporting and filing accurately to avoid double payment.
To read the Israel-Italy Tax Treaty in English on the Ministry of Finance website, click here.
Making a Will in Italy – The Key to Tax Savings and Dispute Prevention
Inheritance doesn’t always transfer smoothly to heirs. Sometimes complex procedural steps are needed to obtain a probate order or permission to realize the assets.
Creating an organized will is not just a matter of personal desire; it is an integral part of estate taxation. A detailed will can ensure that assets are transferred smoothly and efficiently to the heirs. The will should include the wishes of the deceased but must also be adapted to the requirements of the law so that its validity is not compromised.
Italy has a system of ‘forced heirship,’ meaning there are specific rules regarding how a deceased person’s estate must be distributed, with part of the estate automatically passing to family members with inheritance rights (spouse and children). In Italy, the testator has the right to choose to whom to leave their assets or part of their assets, and for this purpose, they must make a valid will that clearly and legally explains how the assets should be distributed.
When drafting a will, it is often possible to choose the law that will apply to it. When dealing with assets in Italy, this choice can have a substantial impact on inheritance planning and its future realization. Without advance planning, the law that will apply to the deceased’s assets will be the law of the deceased’s last and principal place of residence.
Without advance planning, meaning inheritance without a will, the law that will apply to the deceased’s assets will be the law of the deceased’s last and principal place of residence.
If you own assets in Italy, our recommendation is to make a will to ensure that the transfer of assets is done as smoothly as possible. A will can prevent misunderstandings or lengthy legal processes and ensure that the process proceeds in an orderly manner even after the death of the deceased.
Received an Inheritance in Italy? 7 Steps for Proper Realization of Inheritance from Italy
1. Clarification of Factual and Legal Background
First, check the type of asset that is to be inherited, its location, the identity and status of the heirs, the value of the asset, and more.
2. Checking the Timing and Location of Inheritance Realization
Consider whether it’s advisable to realize the asset now and if so, where is it better to realize it – in Italy or in Israel?
3. Regulatory and Banking Aspects
It is recommended to check the costs of money transfers, whether there is a need to open an account in Italy or another country for the purpose of transferring funds, what approvals are required, etc.
4. Planning the Asset Transfer
Consider whether to transfer the asset itself or its proceeds, and what the implications are in terms of tax, exemptions, deductions, etc.
5. Avoiding Double Taxation
In light of the existence of a double taxation prevention treaty, it is recommended to check whether there is a mechanism for crediting tax paid in Italy against tax liability in Israel. Make sure that the reporting is done correctly and accurately to avoid double payment.
6. Checking the Future Effects on the Asset
It is recommended to examine the future effects on the asset; for example, a future sale of the asset will often be subject to capital gains tax in Israel as well.
7. Transferring the Asset to Israel
Performing all necessary actions, submitting documents, handling matters with banks in Italy and Israel, and executing the asset transfer.
How Can We Help?
The goal is to transfer the inheritance to heirs in Israel in the most tax-efficient way, while addressing legal issues in Israel and Italy, and issues related to banking and regulation. For example, whether it’s better to realize a certain asset in Italy or transfer it to Israel; how to transfer inheritance funds to a bank account in Israel; how to use various exemptions between heirs; whether to give gifts during lifetime; whether to establish a trust, and more. Strategic planning, according to law and tax treaties, is essential to minimize tax liabilities.
Nimrod Yaron & Co. has extensive experience in personally and professionally accompanying Israelis with assets or inheritances in many countries around the world, including Italy, from the first stage of planning, through dealing with authorities in Italy and Israel, to transferring inheritance funds to the heir’s bank account.
We work with all relevant professional entities in Italy and Israel and offer legal solutions both in terms of taxation and banking, tailored to the circumstances of the case.
If you have inherited an asset or wish to bequeath assets in Italy in the future, our team of lawyers specializing in international taxation and inheritance law will be happy to advise you on this matter – contact us for an initial consultation.
Q&A
Do I need to pay tax in Israel on an asset inherited from Rome?
No. There is no inheritance tax in Israel. However, capital gains tax may apply after the sale of the property. It is important to check the recommended date for selling the inherited property.
Why is it important to plan the transfer of assets between generations in advance?
The transfer of assets between generations from abroad is not just a family matter but also a tax and economic issue. Early planning, considering legal issues in Israel and abroad, can save a lot of money and prevent legal complications.
How can the inheritance be realized optimally and save tax?
To realize the inheritance optimally and save unnecessary tax payments, all tax options should be examined, including utilizing exemptions, planning gifts, establishing companies, trust funds, and more.
How can the inheritance tax liability in Italy be reduced?
Through early tax planning, which includes drafting a will, utilizing exemptions, giving gifts during your lifetime, and more, you can significantly reduce your tax liability.
Is it better to give an asset as a gift during lifetime or to bequeath it?
The choice between giving a gift and bequeathing depends on the circumstances of the case. Sometimes a gift will be taxed similarly to an inheritance. Therefore, the legal and tax aspects should be examined before making a decision.
What are the implications in case there is no will?
In the absence of a will, the inheritance will be divided among the legal heirs according to Italian inheritance law.
What documents are required for the process of realizing an inheritance in Italy?
To realize an inheritance in Italy, documents such as a death certificate, a will (if one exists), copies of the heirs’ ID cards, property ownership documents, bank account confirmations, and more are required.
How long does the process of realizing an inheritance in Italy take?
It should be considered that the process of realizing an inheritance in Italy can take between several months and a year or more, depending on the complexity of the testator’s estate, the number of heirs, the existence of a will, and other factors.
