Italy: inheritance tax back in the debate

Italian inheritance and gift tax stands at 4%¹ in the direct line and between spouses.

An allowance of €1,000,000² per beneficiary applies, which in practice rules out taxation for most family transfers.

This level bears no comparison with the progressive scales applied in several Western European States, where the marginal rate on direct-line transfers is well above this figure.

We do not publish the rates applicable to collateral relatives and third parties, the corresponding allowances or the territorial rules for this tax: they do not appear in the extracts we were able to verify.

This gap is significant for a transfer that is not in the direct line, and it must be filled with the help of an Italian notary.

The Italian debate on this tax is recurrent, and it centres on how low it is relative to the revenue it generates. Proposals to raise it have been put forward several times without success, which is a source of uncertainty for a long-term estate plan.

A tax attractiveness regime applies to flows — earned income, pension income or investment income — and it is limited in time. The new residents regime lasts a maximum of 15 years³, the foreign retirees regime 9 years⁴.

Inheritance tax applies to a stock, and it applies once, when the wealth changes hands. On substantial wealth, a few percentage points of difference represent amounts out of all proportion to an annual saving on income.

Yet this parameter is rarely highlighted, because it concerns an event people prefer not to plan for and it produces no visible effect during the taxpayer's lifetime.

Other jurisdictions take this logic further. Monaco applies 0%⁵ in the direct line and between spouses; Switzerland generally exempts spouses and descendants, at a rate of 0%⁶, the tax being cantonal.

Mauritius, Andorra, the Bahamas, the Cayman Islands and Vanuatu apply no inheritance tax. Croatia applies 4%⁷ and the Philippines 6%⁸ of the net value.

Inheritance tax usually follows a dual rule: the residence of the deceased and the location of the assets. Real estate generally remains taxable in the State where it is located, whatever the residence of the deceased.

Monaco illustrates this: its duties apply to assets located in the Principality, whatever the domicile, residence or nationality of the deceased or donor.

An international transfer of wealth therefore requires an asset-by-asset review, not a conclusion drawn solely from the country of residence. Treaties on inheritance are also far fewer than those on income.

The civil law governing the succession itself — forced heirship, the freely disposable portion — is yet another question, governed by rules separate from those of tax.

1. Map your assets by country of location, not by country of residence.
2. Check whether an inheritance tax treaty exists with each State concerned.
3. Distinguish the taxation of the estate from the civil law governing its devolution.
4. Have the transfer of wealth costed before moving, not after.
5. Compare regimes on stock as much as on flows: it is the former that is decisive in the long term.

For substantial wealth, the choice between destinations is therefore often decided on this ground rather than on that of attractiveness regimes. A fifteen-year flat tax on foreign income compares poorly with an exemption on transfers, and the two do not address the same time horizon.