Inheritance Tax for UK Residents in Italy

A British family may inherit a home in Tuscany, a Venice flat or a share in an Italian business while the deceased’s wider estate remains in the UK. Inheritance tax for UK residents in Italy can therefore involve two tax systems, two sets of reporting obligations and a careful review of the Italy-UK inheritance tax treaty. The result is not necessarily double taxation, but it should never be assumed that tax paid in one country automatically settles the position in the other.

The starting point is to separate three issues that are often confused: where the deceased was tax resident, where the beneficiaries live, and where the assets are situated. Those facts affect Italian inheritance tax, UK inheritance tax and, in some cases, the succession law governing who inherits.

When Italy can charge inheritance tax

Italian inheritance tax is primarily determined by the deceased’s residence at the date of death. If the deceased was resident in Italy, Italy may tax assets worldwide, including UK bank accounts, investments and property. If the deceased was not resident in Italy, Italian tax generally applies only to assets located in Italy.

For many UK-based families, this means an Italian property is within the Italian inheritance tax net even where the deceased lived permanently in England, Scotland, Wales or Northern Ireland. Italian real estate, Italian bank accounts, shares in Italian companies and certain other Italian-situs assets may all require attention.

The beneficiary’s residence is not normally the decisive factor for Italian inheritance tax. A child living in London who inherits an Italian house can face Italian filing and tax obligations in much the same way as a child living in Rome. Nevertheless, a beneficiary’s UK tax position may matter when the UK analysis is undertaken.

Italian inheritance tax rates and allowances

Italy applies tax by reference to the beneficiary’s relationship with the deceased. The principal rates and allowances are as follows:

• Spouses and direct descendants or ascendants, such as children, grandchildren and parents, are taxed at 4% on the value received above an allowance of €1 million for each beneficiary.

• Brothers and sisters are taxed at 6% above an allowance of €100,000 for each beneficiary.

• Other relatives up to the fourth degree, and certain relatives by marriage, are generally taxed at 6% without the same personal allowance.

• Unrelated beneficiaries are generally taxed at 8%.

• A beneficiary with a qualifying severe disability may benefit from a higher allowance of €1.5 million.

These figures are only part of the calculation. Where Italian real estate is inherited, mortgage tax and cadastral tax are usually also due. The standard rates are generally 2% and 1% respectively, calculated by reference to the relevant property value under Italian rules. Reduced fixed taxes may be available where the beneficiary can meet the conditions for the Italian ‘first home’ relief.

Property valuations deserve particular care. The value adopted for Italian tax purposes may differ from a UK probate valuation or the market price a buyer would pay.It's very important to know that in Italy, the value on which inheritance taxes are applied on inherited properties is NOT the market value (or the purchase price of the property), but the cadastral value (valore catastale), i.e., the taxable value in the real estate registry (Catasto), which is generally much lower than the market value. For this reason, inheritance taxes are relatively low compared to many other European countries.

A simple illustration

Suppose a UK-resident daughter inherits an Italian property with a taxable Italian value of €1.4 million from her father, who was not resident in Italy. If no debts or reliefs alter the calculation, the daughter’s €1 million allowance is considered first. Italian inheritance tax could then apply at 4% to the remaining €400,000, alongside the relevant property taxes.In any case, the cadastral value of a property in Italy is rarely higher than 1 million euros, it would have to be a huge property (a castle or an entire palace), so it is a very remote possibility.

That does not answer the UK position. If the father’s estate is within the scope of UK inheritance tax, the same property may also be relevant to the UK calculation. This is where treaty analysis and double-tax relief become central.

The UK position: residence is not the whole answer

A person described as a ‘UK resident’ may not automatically be exposed to UK inheritance tax on worldwide assets, and a person living outside the UK may still have UK inheritance tax exposure. Since 6 April 2025, the UK has moved towards a residence-based system for inheritance tax, with particular significance for individuals who have been long-term UK resident. Broadly, a person who has been UK resident for at least 10 of the previous 20 tax years can be within the UK’s worldwide inheritance tax regime, and a period of continuing exposure can apply after leaving the UK.

The rules are detailed and transitional provisions can be relevant. Older planning, references to domicile, the date of a move to or from the UK, the composition of trusts and the type of asset may all need review. It is unwise to rely on a general statement that an overseas property is outside UK inheritance tax simply because it is abroad.

UK inheritance tax is normally charged on the estate rather than separately on each beneficiary. The available nil-rate band, residence nil-rate band, exemptions for spouses or civil partners, reliefs for business or agricultural property, and transfers between spouses can materially affect the outcome. The UK and Italian charging mechanisms are therefore different even where they concern the same inherited asset.

Double taxation and the Italy-UK treaty

Italy and the UK have a treaty intended to address double taxation on inheritances. Its application depends on the facts, including the deceased’s connection with each country, the location and nature of the assets, and the taxes charged in each jurisdiction.

In practical terms, relief may be available by giving credit in one country for tax properly paid in the other, subject to treaty conditions and limits. A credit is not always equal to the full amount paid abroad. Timing, the tax base, the person treated as liable and the classification of the asset can all affect the available relief.

This is especially relevant where the deceased had a home in Italy but spent substantial time in the UK, or where the estate includes assets held through companies, partnerships or trusts. A treaty claim should be planned alongside the Italian succession declaration and the UK inheritance tax account, rather than addressed only after both returns have been submitted.

Filing requirements in Italy

In many cases, an Italian declaration of succession must be filed within 12 months of the date of death. It is submitted to the Italian Revenue Agency and generally identifies the heirs, assets, liabilities and relevant tax information. The process may also be needed to transfer Italian real estate, deal with Italian banks and update land registry records.

Foreign documents commonly require formalities before use in Italy. Depending on the document and country of issue, this can involve an apostille, a certified translation or both. Death certificates, wills, grants of probate, powers of attorney and evidence of family relationships should be reviewed early. Delays often arise not from the tax calculation itself, but from incomplete documentation or documents that are not accepted in the required form.

An Italian will is not always necessary for an Italian asset, but its absence can make a cross-border administration more difficult. Equally, a UK will may not produce the intended result in Italy if it has not been considered against Italian forced-heirship rules, matrimonial property issues or the law applicable to succession.

Practical steps before and after a death

Early preparation is particularly valuable for families with Italian property. Keep a clear record of ownership, purchase deeds, cadastral data, mortgages, bank accounts and any previous gifts. If the estate includes a company, establish whether it owns the property directly and obtain the constitutional and financial documents needed to value the interest.

After a death, establish promptly whether there is an Italian will, a UK will or more than one testamentary document. The executors, heirs and any Italian professional advisers should work from a single verified asset schedule. It should distinguish assets located in Italy from those elsewhere, record debts connected with each asset and identify deadlines in both countries.

Beneficiaries should also avoid taking steps that may amount to accepting an inheritance without understanding the liabilities attached to it. Italian law provides mechanisms for accepting with the benefit of inventory in appropriate cases, which can help protect an heir from personal exposure to estate debts. Whether this is suitable depends on the known assets, liabilities and the family’s objectives.

Coordinated advice for Italy and the UK

Cross-border estates benefit from coordinated Italian and UK advice, not two isolated exercises. Italian counsel can address the succession declaration, property transfers, land registry formalities, Italian tax exposure and the effect of Italian succession law. UK advisers can consider the inheritance tax account, residence-based exposure, available reliefs and the treatment of foreign tax credits.

De Benetti Co. Law Firm assists international families with the Italian legal and procedural aspects of estates, including property, succession documentation and communications with the relevant Italian authorities. Where UK issues are also engaged, a coordinated approach with the client’s UK tax advisers can preserve the necessary evidence and reduce avoidable delay.

For any further information or for a specific case, contact our law firm for a free initial consultation.

Avv. Massimiliano De Benetti

email: m.debenetti@debenettilaw.com