Unlike probate processes in some countries, Italian inheritance doesn’t automatically transfer ownership of assets directly to individual heirs upon the decedent’s passing. Instead, the process typically involves a declaration of acceptance of the inheritance by the heirs.
However, once the legal formalities are concluded, the heirs become co-owners of each and every property within the estate. This joint ownership allows them to manage the assets collectively until further decisions are made.
Following the completion of the inheritance process and the official transfer of property into their names, the heirs have two main options:
- Maintain Joint Ownership: The heirs can choose to continue holding the property as a joint community. This might be suitable for situations like a vacation home where each heir enjoys it for specific periods.
- Divide the Property: The heirs can opt to partition the property, resulting in individual ownership of distinct portions. This could involve dividing a house into separate apartments or floors.
Tax Considerations
The distribution of the estate triggers tax considerations, which are regulated by Art. 34 of the ‘Testo unico dell’imposta di registro’. The two main scenarios are:
- Easy Distribution: When the estate’s composition facilitates a straightforward division, such as two apartments and two heirs. In this scenario, a tax of 1% is applied to the estate’s fiscal value (which is usually between 20 and 50% lower than market value).
- Complex Distribution: When the estate presents challenges for equal division, for example, two apartments and three heirs. Here, if the distribution requires one heir (or more heirs) to compensate another with money outside the estate, this compensation is treated in tax terms by the Italian IRS (the ‘Agenzia delle Entrate’) as a purchase of property, with a tax rate of 9%.
An example may explain this better. Let’s assume the estate consists of two apartments worth 1.5 million euros each (total value: €3 million) and must be distributed to three heirs. One heir agrees to get cash (to be bought out), therefore the other two heirs pay him/her €1 mln (fiscal value does not matter when buying out an heir’s share).
This money comes from the two heirs’ cash (not the estate), and is used to buy one heir’s share of the estate. The Italian IRS considers the cash payment to balance the transfer of share as a purchase of property, and will tax it with a tax fee of €90,000.00 (= €1 million x 9%).
The same applies if an heir does not get paid for their entire share but for a piece of it, to balance distribution. For example, if the estate has 2 apartments and one garage, and the distribution is one apartment to an heir, the second apartment to the second heir and the third receives the garage plus €700,000 as a balance from the first two heirs, then a purchase tax of 9% will be applied to this money (€63,000.00).