New Updates On Italian Gift/Inheritance Tax And Trusts

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The draft legislative decree currently under consideration by the Italian Government partially revises the rules on Gift and Inheritance tax and registration taxes with reference to trusts...
Italy Tax
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The draft legislative decree currently under consideration by the Italian Government partially revises the rules on Gift and Inheritance tax and registration taxes with reference to trusts, even those established before the entry into force of the aforementioned decree.

The possible addition of Article 4-bis ("Trusts and other destination clauses") to Legislative Decree of October 31, 1990, no. 346 entails both a confirmation of some principles already widely known and a novelty, with the introduction of a new option by the taxpayer.

Primarily, regarding the territoriality of the contribution of some assets to a trust, it is established that:

  • In the event that the settlor is resident in Italy at the time of the patrimonial separation, the Inheritance and Gift Tax shall be due in relation to all assets and rights transferred to the beneficiaries; while
  • If instead the settlor is not resident in Italy at the time of the patrimonial separation, the Inheritance and Gift Tax shall be due only on the assets and rights transferred to the beneficiary that are present in the territory of the State.

Subsequently, it is confirmed that Inheritance and Gift Tax applies to trusts at the time of the transfer of assets and rights to the beneficiaries. This fully confirms the theory of "exit" taxation (i.e. Inheritance and Gift Tax due only on the moment the assets held in trust are transferred to the beneficiaries) which had already been consolidated in the jurisprudence of the Italian Supreme Court and subsequently in the administrative practice of the Italian Revenue Agency with its Circular 34/E/2022.

However, paragraph 3 of Article 4-bis for states for the possibility for "the settlor of the trust or other destination clause or, in the case of testamentary trust, for the trustee, [...] to opt for the payment of the [Gift and Inheritance] tax on each contribution of assets and rights or on the opening of the succession". In other words, while the general taxation regime of "exit" taxation remains, the option is granted to also apply indirect "enter" taxation (i.e. right on the moment the assets are transferred into the trust by the settlor).

In this case, the tax base, as well as the exemptions and rates applicable, are determined with reference to the overall value of the assets and rights and the relationship between settlor and beneficiary resulting at the time of the contribution or the opening of the succession.

In the case opaque trusts, the Inheritance tax is calculated on the basis of the highest rate without the application of exemptions.

Obviously, if the contribution is subject to "enter" tax, subsequent transfers to the beneficiaries will no longer be subject to any indirect taxation.

Finally, the possibility of refunding the tax paid "previously" by the settlor or the trustee is excluded.

This novella is of significant importance because:

  • On one hand, it reaffirms the "exit" taxation, with significant initial tax savings in complex Estate's restructuring operations;
  • On the other hand, it allows the option of choosing the "enter" tax regime, immediately completing the tax claim, an interesting hypothesis especially in cases of estates and succession planning (if there is the possibility of an increase of the rates of the Gift and inheritance tax due to political outlook).

To summarize:

General principle
"exit" taxation

[Good option for complex Estates restructuring operations ]

GIFT tax to be paid only at the moment the asset of the trust are distributed to the beneficiary

At the moment of the contribution to the trust only 200,00 € fixed tax to be paid, regardless the value of the asset.

GIFT TAX IS DEFERRED

Optional regime
"enter" taxation

GIFT tax can be paid at the moment the trust are transferred into the trust

GIFT tax is calculated on the value of the asset with the normal italian rates [4%, 6% or 8% depending on the family relationship between the settlor and the beneficiary]



This provision is still pending, but considering the political outlook, it could easily be confirmed by Parliament as well.

Italy continues to offer a very positive climate regarding trusts, as confirmed by administrative practices and jurisprudence, consolidating its status as an excellent jurisdiction for corporate restructuring and estate/succession planning.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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