What is inheritance tax and how does it work?

The loss of a loved one is a time of grief and remembrance for family members. At the same time, practical and bureaucratic matters also need to be addressed—including thinking about inheritance tax. To make things easier, we’ve put together a guide to help you understand the ins and outs of inheritance tax in Italy. Let's take a look.

After a person’s death, Italian law specifies the opening of the succession process. In short, this represents the transfer to the heirs of all legal transactions of a patrimonial nature—meaning any transaction subject to economic evaluation.

The Italian Civil Code breaks down inheritances into two categories:

• Testamentary (with a will)
• Legitimate (without a will)

Heirs or legatees named as beneficiaries in the will must first determine whether they need to submit a declaration of inheritance to the tax authorities. This document includes information on the heirs and the assets of the deceased, also known as the estate. Based on this declaration, the tax authorities will calculate the taxes due on the estate.

The estate of a deceased person includes the following:

• Real estate, such as buildings and land
• Liquidity, including bank accounts, savings accounts, or securities
• Companies or firms
• Credit claims
• Goods, such as money, jewelry, and furniture (calculated at 10% of the overall net taxable value)

However, heirs and legatees are not obliged to submit this declaration if the following conditions are met simultaneously:

• If the estate is transferred to the spouse and direct relatives—i.e. children, grandchildren, or parents—of the deceased person
• If the estate doesn’t exceed €100,000 in value
• If the estate doesn’t include real estate or immovable property rights

If one of these three conditions is not met, the declaration of inheritance must be submitted to the local Italian Revenue Agency within 12 months of the taxpayer’s death, or online via their dedicated portal. The following parties are required to submit a declaration:

• Heirs and legatees, or their legal representatives
• Those who are temporarily in possession of the assets of the absentee
• Administrators of the estate and trustees of the unclaimed estate
• Executors of the will

After declaring the assets and possessions of the deceased person, those who are obliged to file a declaration of inheritance must also pay inheritance tax (if applicable).

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Inheritance tax is calculated based on the value and status of the estate. The Italian Revenue Agency determines the tax owed by subtracting the total deductible inheritance liabilities and other tax deductions from the overall value of the estate assets.

First, the total estate value needs to be calculated. This includes the value of all real estate, immovable property rights, securities, movable property, holdings, credit claims, etc.—in other words, the total value of all the deceased person’s property. From this amount, the liabilities of the deceased person are subtracted—including any debts, mortgages, or medical expenses incurred on his or her behalf by the heirs in the last six months of life. The difference represents the asset value on which the taxes are calculated.

In the case of properties inherited with full ownership, the taxable base used to calculate inheritance tax is the cadastral income (rendita catastale), revalued by 5% and multiplied by one of these figures:

• 110 for the primary residential property (prima casa)
• 120 for buildings in cadastral groups A and C—except categories A/10 and C/1
• 140 for buildings in cadastral group B
• 60 for buildings in cadastral groups A/10 (group and private offices) and D
• 40.80 for buildings in cadastral groups C/1 (shops and workshops) and E

For example, if you need to calculate the inheritance tax on the primary residential property, start with the cadastral income (as shown in the cadastral survey), add 5% and then multiply by 110. This way you can see the total value upon which your inheritance tax is calculated.

The following tax rates apply to the total value of the estate:

• 4% for the spouse or direct relatives (parents, children, grandchildren), applied on the net value for each beneficiary on amounts that exceed €1 million
• 6% for siblings, applied on the net value for each beneficiary on amounts that exceed €100,000
• 6% for other relatives up to the fourth degree of kinship, applied to the overall net value with no exemption limits 
• 8%, for all other persons, applied on the overall net value with no exemption limits

Lastly, there’s an additional exemption of €1.5 million for transfers made to those with disabilities.

Inheritance tax must be paid within 60 days of the date on which the tax assessment is served. If an heir doesn’t pay the inheritance tax by the 60-day deadline, they’ll be charged penalties and interest on the overdue payment. The tax can also be paid in installments if the amount exceeds €1,000. In this case:

• At least 20% of the amount must be paid within the 60-day deadline, starting from the tax assessment notification.
• The remainder must be paid in eight or 12 quarterly installments, depending on the amount. The interest on these installments is calculated starting from the first day on which the initial sum is paid. Installments are due on the last day of each quarter.

When filling the declaration, you’ll need to enter the IBAN of the account from which the taxes will be debited, along with the account holder’s tax number. The electronic submission can be filed by the declarant themselves, or someone else entrusted with the task. The tax must be debited from a bank account affiliated with the Italian Revenue Agency or Poste Italiane S.p.A. 

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