Italian Inheritance Tax: calculation updates from 2025

For many of our clients inheriting assets in Italy is a significant life event, not to mention the challenges of having to deal with the complexities of cross-border bureaucracy and Italian inheritance law. Italian inheritance tax, a tax levied on the transfer of assets from a deceased person, applies to both Italian residents and non-residents who inherit assets located in Italy. This means that even if you reside outside of Italy, you might be liable for Italian inheritance tax if you inherit property, finances, or other assets situated in Italy.

Inheritance tax in Italy: a comparison

Italy’s inheritance tax is often considered more favourable than that of the UK and other European countries. With rates between 4% and 8%, Italy’s system contrasts sharply with the UK’s 40% inheritance tax rate or the progressive systems in France and Germany, where rates can reach 45%-50%.

One of the key advantages of inheritance tax in Italy is the generous tax-free allowances:

• Close relatives (such as spouses and children) benefit from an exemption of up to €1 million each, meaning they often pay little or no tax.
• In contrast, the UK offers a lower threshold of £325,000, above which the standard 40% tax rate applies.
• France and Germany also provide significant tax-free allowances, though they vary based on the relationship to the deceased.

Another major difference lies in how tax residency affects inheritance tax liability:

• In Italy, tax residents are subject to inheritance tax on their worldwide assets, while non-residents are only taxed on assets located in Italy.
• The UK currently applies inheritance tax based on domicile rather than residency, but upcoming changes suggest a move towards a residency-based system, aligning it more closely with the Italian approach.

Overall, Italy’s inheritance tax system is more favourable for close family members, thanks to its low tax rates and high exemptions. However, distant relatives and unrelated beneficiaries face higher tax burdens compared to countries like France or Spain, which offer broader allowances for extended family members.

Who pays Inheritance Tax in Italy?

Italian inheritance tax is payable by the beneficiaries of an estate, meaning those who inherit assets from the deceased. The tax liability isn’t placed on the estate itself, but rather on the individuals receiving the inheritance. Heirs may be required to pay inheritance tax in Italy if they receive Italian real estate, including homes, land, and commercial properties, bank accounts or investments held in Italy, shares in Italian companies or business assets registered in Italy.

It’s important to determine whether an estate falls under Italian jurisdiction, as incorrect assumptions can lead to compliance issues or unexpected tax liabilities. However, the specific tax implications vary depending on the beneficiary’s relationship to the deceased.

• Spouse and direct descendants (children): these beneficiaries typically benefit from the most favourable tax rates and the highest tax-free allowances (up to €1 million per beneficiary as of 2023). This means a substantial portion of their inheritance may be exempt from Italian inheritance tax.
• Other relatives (siblings, parents, grandparents, etc.): the tax rates and allowances for these relatives are typically less favourable than those for spouses and children. The applicable tax rate and allowance will depend on the specific degree of kinship.
• Unrelated individuals: those inheriting assets who have no familial relationship with the deceased are subject to the highest tax rate of 8% and the lowest tax-free allowances. As our clients have experienced, this can result in a substantial tax burden.

Italian Residents vs Non-Residents

Many of our clients in the UK assume that Italian inheritance tax does not apply to them, only to discover that owning Italian property or assets brings tax obligations. Italian inheritance tax applies in the following scenarios:

• If the deceased was an Italian tax resident at the time of death, inheritance tax is due on their worldwide assets. This means that heirs—whether in Italy, the UK, or elsewhere—may need to declare and pay tax on any inherited properties, bank accounts, or investments located inside and outside Italy.
• If the deceased was not an Italian tax resident, inheritance tax is only due on assets physically located in Italy. This typically includes Italian real estate, business interests, or financial assets held in Italian institutions.

Because the UK and Italy have different tax systems, there may be double taxation risks when inheriting Italian assets from a UK resident. However, relief mechanisms under the UK-Italy Double Taxation Treaty may help reduce the overall tax burden.

New 2025 inheritance tax in Italy

Last year the Italian government passed new legislation with the introduction of the Italian Legislative Decree No. 239 of September 18, 2024, which introduces significant changes to Italy’s inheritance tax system. It was published in the Official Gazette on October 2, 2024, and will take effect from January 1, 2025. Overall, the decree provides greater clarity on trust taxation and maintains relatively favourable conditions for family inheritances compared to other EU countries. 

These changes will have a significant impact on expats, business owners, and those using trusts. Given these recent changes, seeking professional legal advice is strongly recommended to ensure compliance and maximise tax efficiency. Our firm regularly advises UK and international clients on Italian inheritance tax, helping them navigate the evolving legal landscape with confidence.

Summary of key changes in inheritance tax in Italy

This decree aims to rationalise various indirect taxes in Italy, including inheritance tax. Here’s a breakdown of the most important changes from 2025 related to inheritance tax:

• Clarification of taxable assets for trusts: the decree clarifies that for trusts where the settlor, that is, the person who sets up a trust, is an Italian resident, inheritance tax is due on all assets transferred to beneficiaries. For non-resident settlors (like UK residents), the tax applies only to assets located in Italy that are transferred to beneficiaries.
• New rules for trusts and similar structures: Trusts and similar structures are specifically addressed. Inheritance tax is due when assets are transferred to beneficiaries. The tax rates and allowances depend on the relationship between the settlor and beneficiary. The settlor (or trustee in testamentary trusts) can opt to pay the tax upfront at the time of asset transfer or upon the opening of succession. This pre-payment option applies even to pre-existing trusts.
• Exemption for business assets: Transfers of business assets (companies, branches, shares, and quotas) are exempt from inheritance tax, provided the beneficiary continues the business activity for at least five years. This exemption also applies to shares and quotas of companies resident in the EU, EEA, or countries with adequate information exchange.
• Deductibility of debts: The decree changes the rules for deducting debts incurred by the deceased in the last six months of life, clarifying how and to what extent these can be offset against the inheritance.
• Administrative and procedural changes: Several administrative changes streamline the process, including updated procedures for filing inheritance declarations, paying taxes, handling interactions with the Italian tax authorities (Agenzia delle Entrate), and the role of the Notaio. The emphasis is on electronic filing and processing.