As detailed in a previous blog, the new Italian prime minister, Mr (Super) Mario Monti and his merry men have busily been introducing legislation to save Italy, it’s actually called ‘Save Italy’, and has its own social logo.
One of the effect has been to change ICI to IMU, the local property tax and apply it to all residential property owned in Italy, not just second homes. Under Berlusconi this was removed from properties in Italy used as a person’s primary residence, only applying to second homes, therefore it was still applicable to the majority of foreigners who purchased property in Italy, and the new IMU still is of course. What owners of second homes in Italy may be discovering is that they could be paying more now that ICI has become IMU, although in rare cases it’s actually less, but this varies from municipality to municipality.
Another possible direction the Monti administration could take is to reassess inheritance tax thresholds. As you can imagine the current categories of who pays what and how much when they inherit are not exactly complicated but can induce a headache in those with delicate constitutions.
Here is a brief summary of the present key scenarios regarding inheritance and donation tax applicable under Italian fiscal law, to illustrate the current scenario:
| Relationship of beneficiary |
% tax due |
| Spouse or parenti in linea diretta(direct line relative, e.g. parent/child) |
4% on the total net value over €1M/beneficiary |
| Brother or sister |
6% on the total net value over €100,000/beneficiary |
| Collateral relative up to the 4th degree (parenti collaterali fino al quarto grado) and in-laws in direct line(affini in linea diretta) , as well as collateral in-laws up to the 3rd degree (affini collaterali fino al terzo grado) |
6% on the total net value (no allowance) |
| Any beneficiary not covered by the above
|
8% on the total net value with no allowance |
The inheritance tax rate was as much as 60% up until 2000 when the administration of the day lowered this to a maximum of 11% (hurray, you and especially your heirs say). The next year that much misunderstood man Silvio Berlusconi and his government abolished inheritance tax altogether (an even bigger hurray, especially from Berlusconi’s heirs). Amid all the political to and fro came Mr Prodi, the sensible bespectacled one, arrived in power in 2006 and reintroduced inheritance tax. However, he had the good sense, or political handicap, to introduce an acceptably light regime where the limit on real estate was fixed at 11% and, as can be seen from our synopsis above, which details some of the amendments of Decree no.262 of 2006, allowed exemptions that seem so friendly as to be out of character with Italian tax law.
According to the Banca di Italia figures released in Q4 of 2011, the Italian national debt hovers at around €1.9 trillion, equating to 122% of the country’s GDP. And of course we all know how the markets forced our hero Silvio out of office, but even though he left, the national debt firmly remains. Jedi knight Lord Monti has little time to save the universe, hence the ‘Save Italy’ austerity drive.
I am not an accountant in much the same way a canary is not a coal miner, nor do I or Word&Buyer Ltd receive any form of remuneration by recommending our clients use any particular firm of accountants or lawyers in the UK or Italy, but I can and will warn our clients (that is non-Italians wishing to purchase luxury property in Italy) of the potential danger of Mr Monti waking up one morning, looking in the mirror as he’s shaving, having a eureka moment and promptly hiking inheritance tax thresholds through the roof and savagely cutting back the generous exemptions.
A simple first step, which should be done anyway, is to understand if your home country will applies to your Italian property in the case of your demise.
Another, again regardless of whether Super Mario has his special bathroom moment or not, is, if before completion, the investor has already decided who the beneficiary will be, to involve them in the purchase process, giving them a remainder interest in the property and thereby legitimately avoiding inheritance tax liabilities.
In particular, for luxury properties, purchasing through a corporate vehicle, with either full or partial ownership may well prove the least costly option, although it is not a tax free route, it may certainly be the least complicated and overall most cost effective.
This is nothing more than a very brief outline of possible estate planning strategy actions purchasers can take to minimise, or avoid, inheritance tax liabilities.
Nor is it certain that the Monti administration will touch the existing inheritance tax regime.
Regardless of this, if you are planning on, are currently purchasing or have already purchased real estate in Italy, it would be prudent to form an estate planning strategy, consulting a property lawyer and/or accountant experienced and conversant in Italian property, tax and corporate law.
Our hero, Mario Monti - aka as Super Mario, Italy's new primeminister
