Italy had the distinction of being the European country to have the most favorable legislation regarding the taxation of inheritance, because in 2001 the inheritance tax was abolished completely. Subsequently, however, in 2006 Italy has reintroduced the inheritance tax, but nevertheless, we can still say that, thanks to exemptions, in our country the tax in question does not exist between spouses and relatives in a straight line ( which are the direct descendants and not only children, but also grandchildren and great grandchildren), unless in the case of large real estate portfolios.
Why make such a statement?
For two reasons. The first is that the Italian law, just since October the third 2006, states that, up to a value of one million euro of the properties that are part of the inheritance, spouse and children do not pay inheritance tax.
The second reason, which is related to the first, concerns the way in which the Italian state evaluates the real estates , that means the basis on which to apply the inheritance tax at the rates that we shall now see.
Well, in Italy the value of a property is calculated on the basis of the land value, which is based on the cadastral income. The tax office ( Agenzia delle Entrate )attributes to each property within its territory an income on which a coefficient is applied that determines the cadastral value of the property for the purposes of any application of inheritance tax. But the value of property so determined is much lower than market value.
To give an example, even with approximation, when it comes to real estate classified by the Italian state as a civil building ( A2 category to which most of the buildings belong…), it can happen that a house, which has a market value of € 600,000.00 that the buyer has paid, for the state it has a land value less than 200,000.00 euros for the purposes of inheritance tax, ie a value of even a third of the real one.
This value is determined by multiplying the cadastral income attributed to property for the coefficients established by law ( 120 for buildings of category A; 168 for properties of category B and 60 for buildings of lower quality).
The result, as we said above, is a value that is much lower than the market value of property.
In conclusion, the fact that the Italian law establishes an exemption from the payment of inheritance tax between spouses and between parents and children up to a value of one million euros of the properties that are part of the inheritance, and the way in which you actually calculate this value, leads to the conclusion that hardly in Italy spouses and children pay the inheritance tax, unless it is inherited assets of considerable value.
Otherwise if the real estate constituting the inheritance exceeds a million euro, then the spouse or children, or any direct descendants, will have to pay inheritance tax at a rate of 4% percent that will be applied, however, only on the part exceeding the above value.
With regard to other categories of heirs, the Italian law states that brothers and sisters are charged 6% percent on the value of the real estate inherited, with an exemption, for them, of € 100,000.00, and other relatives up to the fourth degree, in-laws in a straight line and in-laws in a collateral line, also pay their 6% percent but without any exemption, and all other persons who do not belong to these categories pay, however, 8% percent.
We must also add that the amounts of the exemptions increase every four years, because the Italian state with periodicity updates the values of exemptions according to the cost of living.
For the sake of completeness, remain to mention the other two taxes to be paid by all and sundry, in the case of inheritance of real estate property. These two taxes are the transcription tax and the mortgage-cadastral tax but it would be wrong to define them too as inheritance taxes, because these two taxes apply ( and are similar to those of other countries ) to any transfer of ownership ( ie for sale, donation and so on ). These two taxes must be calculated always on the cadastral value, determined by the state in the way we have seen above, with a rate of 2% percent with regard to the tax of transcription and a with a rate of 1% percent with regard to mortgage-cadastral tax.
( Avv. Pier Luigi Cantini )