BRITISH EXPATS IN ITALY COULD SOON AVOID INHERITANCE TAX ENTIRELY
Thanks to the forthcoming changes to UK Domicile rules, which are due to be rolled out in the new UK tax year, from April 2025, it could be possible for Italian-resident British citizens to avoid inheritance tax on their estates entirely.
As the rules stand now, UK inheritance tax is determined by domicile rules, with many UK citizens remaining UK domiciled and subject to UK IHT even when they have been out of the UK for long periods of time as obtaining non-UK domicile status is often a complicated and costly process.
From April 2025, the rules will be simplified and UK IHT will be applied according to residency, however individuals will remain within the scope of UK inheritance tax for 10 years after leaving the UK.
This is great news for long term UK expats (those who have or will live abroad for 10 years or more), and even better news for those resident in Italy. In Italy, there is a form of tax efficient structure available known as an Italian-compliant bond. These are commonly used as a vehicle for long-term investments by Italian residents and are set to become even more beneficial under the aforementioned changes as assets held within them are exempt from Italian IHT.
With proper planning and by consolidating assets into an Italian-compliant bond (often referred to as a “tax wrapper”), Italian residents can often avoid their estates being subject to any inheritance tax and avoid the lengthy and complicated process of Italian probate.
EVEN MORE OPPORTUNITY FOR TAX EFFICIENCY THANKS TO THE NEW FOREIGN INCOME AND GAINS REGIME
In addition, under the new Foreign Income and Gains regime (FIG), which will also be introduced in April 2025, individuals who have been out of the UK for 10 years will not be subject to tax on their foreign income and financial assets for the first 4 years after returning to the UK and nor will they be subject to the full burden of UK inheritance tax for the first 10 years.
These changes present a significant financial planning opportunity for British expats, particularly in Italy where it is likely that, with advice and a suitable financial plan, they can enjoy tax free growth on investments and mitigate taxes on death.
Please get in touch for more information or a free initial consultation to see how you and your family can benefit from these changes.