For those considering asset transfers to descendants in Italy, understanding the local inheritance and gift tax regime is essential. Recent legislative changes have introduced a particularly advantageous system that foreign residents should be aware of. This post explores how Italy’s dual exemption framework can significantly benefit your estate planning.
Italian inheritance and gift tax: double exemption benefits
In Italy, transfers of assets to descendants (children and other direct descendants) are subject to a relatively favorable tax treatment with a flat tax rate of 4% applying to both inheritance and gifts. More importantly, a substantial exemption (franchigia) of €1 million per beneficiary is available. What many foreign residents may not realize is that following recent reforms under Legislative Decree 139/2024, Italy now maintains completely separate exemptions for transfers mortis causa (inheritance transfers) and transfers inter vivos (gifts during lifetime).
This separation means that each child or direct descendant can receive up to €1 million as gifts during the donor’s lifetime tax-free, plus an additional €1 million through inheritance after the donor’s death, also tax-free.
To illustrate this advantage:
A father wishing to transfer assets worth €2 million to his daughter could gift €1 million during his lifetime with no tax due (covered by the gift tax exemption) and leave the remaining €1 million through his will, again with no tax due (covered by the inheritance tax exemption). The total tax savings would amount to €80,000 (4% of €2 million).
This favorable treatment results from the abolition of the “coacervo” principle, which previously required combining lifetime gifts with inheritance assets when calculating tax. Now, these are treated as entirely separate for tax purposes, creating significant planning opportunities. The new legislation explicitly extends this treatment to trust structures as well.
Article 4-bis of the Unified Succession and Gift Tax Law (TUS) confirms that the same exemptions apply to beneficiaries of trusts based on their relationship with the settlor.
For foreign residents with Italian assets or heirs in Italy, this dual exemption system creates several planning advantages. You can strategically time asset transfers during your lifetime and at death, potentially doubling the total tax-free amount transferred to each descendant, and even utilize trust structures while maintaining these tax benefits.
Italy’s inheritance and gift tax system now offers a notably advantageous framework for transferring wealth to direct descendants. With proper planning, foreign residents can effectively double the tax exemption available to each beneficiary through the strategic use of both lifetime gifts and inheritance transfers.
This article provides general information on Italian inheritance and gift tax rules as of March 2025 and should not be considered legal or tax advice. Individual circumstances may vary, and tax laws are subject to change.
For further information and insights on this topic, feel free to contact Paolo Gaeta & Associati for personalized legal and tax assistance.
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