Inheritance and Gift Tax for Those Who Transfer Their Residence to Italy: New Residents and Foreign Pensioners

2 days ago
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The transfer of tax residence to Italy produces effects not only on income taxation, but also on inheritance and gift tax.

The issue is particularly relevant for persons who own real estate, shareholdings, financial investments or other assets abroad. In these cases, in fact, Italian residence may result in assets located outside Italy also becoming subject to Italian taxation.

However, a specific derogation is provided for persons who access the new-resident regime under Article 24-bis of the TUIR.

1. Territoriality of inheritance tax

The general principle is contained in Article 2 of Legislative Decree No. 346 of 31 October 1990 (TUSD).

If the de cuius is resident in Italy at the time the succession opens, Article 2(1) TUSD provides for the application of the tax to all assets and rights transferred, including those located abroad.

If, on the other hand, the de cuius is not resident in Italy, Article 2(2) TUSD limits the tax to assets and rights located within the territory of the State only.

It follows that the transfer of residence to Italy may entail, as a general rule, a shift from taxation limited to Italian assets to taxation of worldwide assets for inheritance tax purposes.

2. The exemption for new residents

A significant derogation is provided for persons who exercise the option for the new-resident regime under Article 24-bis of Presidential Decree No. 917/1986. The provision regulates the optional regime applicable to income produced abroad by persons who transfer their tax residence to Italy.

For inheritance tax purposes, however, the central provision is Article 1(158) of Law No. 232 of 11 December 2016. The provision establishes that, for successions opened and gifts made during the tax periods in which the option is valid, inheritance and gift tax is due only in respect of assets and rights located in Italy.

The benefit is particularly relevant for those who transfer their residence to Italy while maintaining a substantial part of their assets abroad.

A new resident who owns, for example, a property in Italy, a villa in France and financial investments in Switzerland may therefore, provided that the relevant conditions are met, be subject to Italian inheritance tax only in respect of assets located in Italy. Foreign assets naturally remain subject to any taxes imposed by the foreign States concerned.

3. Gifts, trusts and other gratuitous transfers

The rules do not concern successions alone. Article 1(158) of Law No. 232/2016 expressly also refers to gifts made during the period in which the option is valid.

The Italian Revenue Agency, in Circular No. 17/E of 23 May 2017, § 5.3, also clarified that the provision must be coordinated with the scope of application of gift tax and may concern other gratuitous transfers as well.

The benefit is therefore also relevant in the context of generational transfer planning, including, where the relevant conditions are met, transfers through trusts or other destination constraints.

The rules governing trusts and destination constraints were, moreover, reorganised by Legislative Decree No. 139 of 18 September 2024, which amended the TUSD with effect, as a general rule, for successions opened and gratuitous acts carried out from 1 January 2025.

4. Exclusion of individual States from the option

The inheritance tax benefit must be coordinated with the possible exclusion of certain States from the regime. Article 24-bis(5) TUIR in fact allows the taxpayer to exclude one or more States or territories from the application of the substitute tax on foreign income.

According to Italian Revenue Agency Circular No. 17/E/2017, § 5.3, the exclusion also produces effects for inheritance and gift tax purposes. Therefore, assets located in States excluded from the option do not benefit from the special territorial limitation and may be subject to Italian tax under the ordinary rules.

The choice of States to include in or exclude from the option should therefore be made taking into consideration not only the annual taxation of income, but also the effects on the future transfer of assets.

5. International successions and double taxation

International successions may result in the concurrent application of taxes by several States. If, for example, a person resident in Italy owns real estate abroad, Italy may tax the transfer on the basis of the residence of the de cuius, while the foreign State may apply its own tax on the basis of the location of the asset.

To avoid or mitigate these situations, international conventions concerning inheritance taxation are relevant and, in the absence of a specific convention, the tax credit for taxes paid abroad.

The Italian treaty network concerning inheritance taxation is, however, considerably more limited than that relating to income taxes. More specifically, Italy has specific agreements concerning inheritance taxation with seven countries, namely the United States, United Kingdom, France, Denmark, Sweden, Greece and Israel.

Of particular relevance is the Convention between Italy and France for the avoidance of double taxation with respect to taxes on inheritances and gifts, signed in Rome on 20 December 1990 and ratified by Law No. 708 of 14 December 1994.

The Convention expressly concerns both inheritances and gifts and regulates the allocation of taxing powers between the two States according to the nature and location of the assets.

For an Italian resident who owns real estate in France, it is therefore necessary to examine not only Italian and French domestic rules, but also the provisions of the specific applicable Convention. This aspect is particularly important in the planning of real estate assets held in several States.

6. The tax credit for taxes paid abroad

Where there is no specific convention, Italian law nevertheless provides for a unilateral mechanism to mitigate double taxation.

Article 26(1)(b) TUSD provides for the deduction from Italian tax of taxes paid to a foreign State in connection with the same succession and in relation to assets located in that State, up to the amount of the portion of Italian tax proportionate to the value of those assets.

The credit may reduce double taxation, but does not necessarily guarantee its complete elimination. Differences in tax rates, allowances, the determination of the taxable base or the criteria used to establish the location of assets may in fact leave a portion of the foreign tax burden definitively borne by the heirs.

For new residents, on the other hand, the protection may operate more radically: for foreign assets covered by the option, Article 1(158) of Law No. 232/2016 directly limits Italy's taxing powers, without the need subsequently to eliminate double taxation through the tax credit.

7. The different regime for foreign pensioners

A different situation concerns pensioners who transfer their tax residence to Italy benefiting from Article 24-ter TUIR.

That provision allows, where the conditions laid down by law are met, recipients of pensions paid by foreign entities who transfer their residence to certain Italian municipalities to apply a 7% substitute tax on foreign-source income. From an inheritance tax perspective, however, there is an important difference compared with the new-resident regime.

The exclusion of foreign assets from inheritance and gift tax is not contained in Article 24-bis TUIR, but in the separate provision of Article 1(158) of Law No. 232/2016, which specifically refers to persons who have exercised the option provided for by Article 24-bis.

There is therefore no corresponding provision expressly extending the same benefit to persons applying the regime under Article 24-ter TUIR.

For a pensioner who transfers residence to Italy while maintaining significant assets abroad, the benefit of the 7% tax on foreign income must therefore be assessed separately from the inheritance tax consequences arising from Italian residence.

8. Italian tax rates and allowances

Even in the absence of special regimes, Italy has an inheritance tax system characterised by relatively low tax rates and significant allowances.

Pursuant to Article 7 TUSD, transfers in favour of a spouse and direct-line

relatives are subject to a 4% tax rate, with an allowance of EUR 1 million for each beneficiary.

For brothers and sisters, the tax rate is 6%, with an allowance of EUR 100,000 per beneficiary.

For other relatives up to the fourth degree and certain relatives by marriage, a 6% rate with no allowance applies, while transfers to other persons are subject to an 8% rate.

9. Conclusion

The transfer of tax residence to Italy must also be assessed from the perspective of inheritance planning and generational transfer.

For new residents under Article 24-bis TUIR, Article 1(158) of Law No. 232/2016 introduces a particularly significant benefit, generally limiting Italian inheritance and gift tax to assets and rights located in Italy during the period in which the option is valid.

A corresponding exclusion is not, however, expressly provided for foreign pensioners applying Article 24-ter TUIR.

Where international assets are involved, proper planning therefore requires a coordinated assessment of tax residence, the location of assets, any applicable special regime, international conventions and mechanisms for avoiding double taxation.

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Have you transferred, or are you considering transferring, your tax residence to Italy and do you own real estate, shareholdings, financial investments or other assets abroad? Would you like to assess the effects of the new-resident or foreign-pensioner regime also from the perspective of your future succession?