DISPOSING BY WILL / INHERITING AN ITALIAN PROPERTY

Index:
1) Italian Wills
2) Italian Probate
3) How your Italian villa will not be taxed on death: the new Italian Inheritance Tax (January 2007).

Under Italian law of succession a person may dispose of his / her property / Estate for the time after his / her death by Will (Testamento) or alternatively, let the law to deal with this matter.

Where a person dies without a valid Will, (Intestata) Italian law states who is going to inherit and how much (Successione legittima). Where a person dies leaving a valid Will the law will first ascertain the validity of such Will, secondly provide a set of formalities to be complied with and, in some case taxes to be paid, thirdly will ensure that the Will is implemented and the relevant assets are legally transferred to the persons / beneficiaries entitled (Eredi / legatari).

In implementing the Will of an Italian national, Italian law will also ensure that the immediate members of the Deceased family are not deprived of their minimum statutory share of the Estate (Quota di legittima), which is due to them under the general law. Where the Will infringes such minimum statutory shares, the Will may not implemented / the heirs who have been deprived or are affected will have redress under the law and may apply to the Italian Courts.

Italian succession law and Italian probate procedure are complex and in this document I can only provide general indications. You should always seek the advice of a specialised Italian law firms where seeking to make an Italian Will, trying to dispose of property located in Italy or should you inherit / be entitled to any property in Italy.

1) ITALIAN WILLS  -  Return to Index

Under Italian law there are three different ways of making a valid Will:

a) Handwritten Will (Testamento Olografo) - This is a document personally handwritten by the person making the Will (Testator), dated and signed. There is no need of witnesses, there is no attestation clause. It can be a very simple letter or document.

This document can be in any language, written on any paper / other medium. Although it is a simple document, it is advisable that it should be checked by a lawyer to ensure that all the formal and substantive  legal requirements are satisfied.

b) Formal Will (Testamento Pubblico) - This is a document drafted by an Italian notary upon the instructions of the Testator, read out by the Notary to ensure that it complies with the wishes of the Testator and signed by the Testator in the presence of witnesses. The Will is then lodged with the Italian notary.

This is a fairly formal document. While it provides reassurance that the Will will not be lost / disregarded, it involves a cost (notarial fees), and its contents are immediately disclosed to third parties (witnesses), who may not keep it confidential.

c) Secret Will (Testamento Segreto) - This is a Will drafted / written by the Testator and placed in a sealed envelope which is then delivered to an Italian Notary. The notarial fees are reduced, the contents of the Will shall remain secret until after the death of the Testator when, the sealed envelope will be open.

In some cases, foreign Wills will be recognised and enforced under Italian law. However this is a complex matter. Where a person owning property in Italy wishes to make a foreign Will (say, wishes to make a Will in accordance with English law), it is recommended that the matter be considered both by an Italian lawyer and a lawyer practising in the relevant foreign jurisdiction, as the different rules of two different legal systems will be applicable and operative.

One of the problems of Wills under Italian law is that the law provides that the members of the immediate family of the Testator are entitled to minimum statutory shares (Successione necessaria) in his / her Estate. So, it is not simply a question of the form / formalities of making the Will but is also a question of ensuring that the minimum shares granted by law to the various beneficiaries are complied with. This is a substantive Italian legal matter.

The rules relating to minimum statutory shares of the Estate, may not, in some cases apply. Generally the following relatives will be entitled to the following minimum statutory shares:

If there is a breach of these rules, the beneficiary affected, who has been excluded or receives by Will less than his minimum statutory share of the Estate, can impugn the Will and apply to the Italian courts. Whatever the provisions in the Will, the Italian courts will then re-distribute the assets of the Estate in accordance with the above rules.

It will be apparent from the above that these rules are very complex, and this is why the assistance of a qualified Italian lawyer is advisable.

2) ITALIAN PROBATE - Return to Index

Where a person dies owning property (land or buildings) it may be necessary to collect documentation, organise certified translations of documents, appoint a local notary and to follow special procedures to ensure that the property is transferred at the Land Registry in the name of the beneficiaries entitled.

The first point to note is that Italian Inheritance Tax (Imposta sulle Successioni e Donazioni) has recently been re-introduced in Italy but is not always payable, so that only minor taxes (Imposta ipotecaria and Imposta catastale) for a maximum amount of 3% of the value of the property will usually be payable in Italy. In all cases it is advisable to consult Italian law firms specialised in Italian succession and probate matters. Where particular conditions apply, these taxes are further reduced to Euro 168 each (Prima casa), for a total tax of Euro 336 whatever the value of the property !!!

This, however will not prevent foreign taxes being payable. Where the Deceased was born / domiciled in the United Kingdom the position should be considered with the assistance of specialised UK accountants, as UK Inheritance Tax may be payable.

The second point to note is that, although Italian Inheritance Tax may not always be payable, there is still a requirement to lodge an Italian Inheritance tax Return (Dichiarazione di Successione) in any event, within one year from the death of the Deceased. This will, eventually ensure that any Italian property / real estate is correctly re-registered at the Land Registry in the name of the beneficiaries entitled.

The third point is that where the Estate includes a bank account, special formalities will continue to apply, depending on the particular Italian bank involved. Unfortunately in most cases the procedure to obtain the release of funds held at the time of death by the Deceased with a bank is frequently time consuming and expensive, as to avoid fraud, Italian banks will have to ensure that the funds are released to the correct beneficiaries.

Generally where the Deceased did not own land or property, nor a bank account in Italy, the probate procedure can be extremely simple. Italian law does not require executors to be appointed.

How your Italian villa will not be taxed on death: the new Italian Inheritance Tax (January 2007). - Return to Index

Father Christmas (Santa Claus) was three days late in Italy this year, at least as far as Italian Inheritance Tax is concerned.
On the 28th December 2006 the Italian Parliament eventually passed the final version 2007 Budget Law (Finanziaria 2007) which among other, totally unrelated matters substantially improves Italian Inheritance Tax (Imposta di Successione), from the taxpayer's point of view.
The background is that after an absence of nearly five years from Italy, Inheritance Tax was reintroduced first in a virtual form (by reference to another tax already in existence) last July, and then by formally re-introducing the earlier law (previously abolished) with some changes last October. Thus, to a certain extent, the actual charge under this tax will depend on the actual date of the death in question.
Finanziaria 2007 has now consolidated this tax in Italy, in its permanent version, at least for the foreseeable future and applies to all Estates where the death occurred on or after the 3rd October 2006.
Compared with its equivalent in the UK (where Inheritance Tax is levied at the flat rate of 40%), Italian Inheritance Tax is very generous.
The new Italian Inheritance Tax is now levied at three different flat rates, on the whole or part estate of the Deceased with reference to the beneficiaries entitled, as follows:
- At the rate of 4% where the Estate or part of the Estate devolves to the Deceased's spouse or children, subject to an exempt amount for each beneficiary of Euro 1,000,000 each (which at current exchange rates is equivalent to an exempt slice of £ 657,800 for the spouse and each of the children) (the so called "Franchigia").
Thus in the case of a widow and three children any Estate up to £ 2,631,000 would not be taxed at all, and - 6% where the Estate or part of the Estate devolves to brothers or sisters (subject to an exempt amount of Euro 100,000 each) and to other relatives of the Deceased up to the 4th degree (without any "exempt amount"), and -8% where the Estate or part of the Estate devolves to unrelated parties. Where the Estate or part of the Estate devolves to one or more disabled children, the exempt amount is increased to Euro 1,500,000 (£ 986,800 at the current rate of exchange).
This in practice means that the small / medium Estates are not subject to Inheritance tax in Italy. In addition, Finanziaria 2007 now states that where the Estate includes a business or a substantial shareholding in a company, whatever their amount, they are not taxed on death if they pass to the children of the Deceased, and the said children undertake to continue to carry on the business or control the company for at least 5 years.
The rationale behind this generous legislation is that the Italian taxman has decided not to endanger the family home on the death of the breadwinner, a most critical time in any family.
Also because small / medium businesses are the backbone of the Italian economy this new legislation attempts to avoid the break up of viable businesses on the death of the founder / proprietor.
In any case and whatever the reasons, Italian Inheritance Tax is now extremely generous and only the largest Estates are now exposed to tax on death.
For foreign / non resident owners of Italian properties, it will probably mean that the Italian cottage / villa will not be taxed in Italy on death. Although a fairly complex probate and succession procedure has now been reintroduced, other taxes have now recently increased, in a way Italy is an Inheritance Tax haven.
As things stand at the moment, Italy is the ideal place to invest and retire, for the benefit of future generations.

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