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Where Taxpayers and Advisers Meet

inheritance tax uk and italy

riccardob
Posts: 92
Joined: Sun May 29, 2011 10:02 am

inheritance tax uk and italy

Postby riccardob » Sun May 29, 2011 10:04 am

Hi,

I have lived in the uk for fifteen years.

My parents have assets in italy and some here in the uk. They have the official residence in italy and they are registered as resident there and pay italian tax on their savings / property they own there. They do spend some time in the uk and have a house here.

My question relates to inheritance tax for both cash deposits and property based in italy. Would I have to pay tax twice ie. first in italy and then in the uk if i were to transfer the proceeds here?
If I were to "wire" the proceeds to my bank here would the tax man jump on me even once i had paid italian inheritance tax?

btw i nowe only have british citizenship, one of my parents is italian and the other has dual nationality.

My parents are confused about all this.

Any help would be appreciated thanks.

Rick

riccardob
Posts: 92
Joined: Sun May 29, 2011 10:02 am

Re: inheritance tax uk and italy

Postby riccardob » Sun May 29, 2011 10:08 pm

Just more info to add to give you a clearer picture.

My parents live more or less the whole year here in the uk since december 2009. However they still have residence in italy for the italian law and also a tax return is filed there every year in italy for their italian assets.

Many thanks

collich
Posts: 64
Joined: Mon May 23, 2011 4:54 pm

Re: inheritance tax uk and italy

Postby collich » Mon May 30, 2011 10:56 am

There's a lot to deal with here. But here is some guidance.

When your parents die they will be subject to UK IHT on UK sited assets. They may also be subject to UK IHT on there worldwide assets if they are domiciled here. This is a difficult concept to explain. Everyone gets a domicile of origin (I'm assuming this is Italy for your parents) but this can be displaced by a domicile of choice. To acquire this your parents would most importantly need to intend to stay in the UK indefinitely. Your two posts seem a little inconsistent here - so I canot advise.

There may be double tax relief if assets are subject to Italian and UK IHT.

If the bank account and property is only subject to Italian IHT then there is no UK IHT charge for remitting the proceeds

riccardob
Posts: 92
Joined: Sun May 29, 2011 10:02 am

Re: inheritance tax uk and italy

Postby riccardob » Mon May 30, 2011 11:31 am

Thank you for your reply.

It is likely that they will stay here for the rest of their life but will keep property in italy and most cash assets.
They currently file a tax return to italian tax authorities every year as they still have legal residence there as far as the italian authorities go.

If I am not misunderstanding your reply their italian assets would be subject to uk law but I think that they would also be subject to italian law as the assets are situated there. Would this mean that the uk italy treaty on iht would apply and the two countries would have to decide what is taxed under which jurisdiction?

Thanks

maths
Posts: 7593
Joined: Wed Aug 06, 2008 3:25 pm

Re: inheritance tax uk and italy

Postby maths » Mon May 30, 2011 2:17 pm

Based on your statements you and your parents appear to be UK domiciled under UK law. They are as a consequence exposed to UK IHT on worldwide assets.

The UK/Italy double tax agreement allows Italy to levy its equivalent of UK IHT on Italian situs assets only (eg land and cash at bank).

Any Italian "IHT" is off-settable against any UK IHT levied on those assets.

I have assumed that under Italian domestic law your parents are not Italian domiciled; if they are then they are dual domiciled and the DTA resolves this in favour of one country only (probably UK, but this depends upon a proper analysis).

riccardob
Posts: 92
Joined: Sun May 29, 2011 10:02 am

Re: inheritance tax uk and italy

Postby riccardob » Mon May 30, 2011 3:05 pm

many thanks for your very usefule reply.

One last question, if my parents were to transfer the money (the cash they have in italy) now into my name on an italian bank account and also put my name on the deeds of the house they own in italy would this help avoid UK iht (assuming that uk inheritance tax would apply as listed in your reply).

collich
Posts: 64
Joined: Mon May 23, 2011 4:54 pm

Re: inheritance tax uk and italy

Postby collich » Mon May 30, 2011 3:44 pm

I think it may be worthwhile doing a bit of reading regarding domicile. It is quite a complicated concept and it very important in your case (although on the info you've given us - I agree with the other contributor - they sound UK domicile).

The transfer of assets will only work if your parent survive 7 years from the date of the gift (that's a UK IHT rule - I am not an Italian tax expert). But IHT gets less and less the closer they get to 7 years until it becomes fully exempt at 7.

This is on the assumption that those Italian assets are subject to UK IHT.

riccardob
Posts: 92
Joined: Sun May 29, 2011 10:02 am

Re: inheritance tax uk and italy

Postby riccardob » Mon May 30, 2011 3:47 pm

i have tried reading on the domicile issues and it confused me. Some info I have shows that you have to have been resident here for 17 out of 20 tax years to be deemed domiciled for iht purposes is this correct?

If my parents were to be treated as uk domiciled for iht purposed i would guess that the seven year rule would also apply if they put my name on the italian house and opened a bank account in my name and put the cash in it.

maths
Posts: 7593
Joined: Wed Aug 06, 2008 3:25 pm

Re: inheritance tax uk and italy

Postby maths » Tue May 31, 2011 6:15 pm

Assuming your parents intend to remain in the UK for the rest of their lives they will be UK domiciled under common law (and thus there is no need to look at the 17 out of 20 year test).

Any gift made by them in lifetime falls within the UK IHT charge if they die within 7 years (unless they have an unused nil rate band ie £325K each).

The UK/Italy agreement has no application to lifetime gifts.

Hence, the gifts (if of Italian situs assets) may also fall within the Italian tax charge.

riccardob
Posts: 92
Joined: Sun May 29, 2011 10:02 am

Re: inheritance tax uk and italy

Postby riccardob » Tue May 31, 2011 7:24 pm

maths your reply is very useful.

Does the gift uk rule apply retrospectively to gifts they may have made three years ago whilst they were full italian residents and at the time they did not have intention of coming here or do the gifts only apply if they are made whilst they are uk resident?

Also under uk iht law does the survivying spouse get a 650k allowance (ie the 325l from the deceased spouse)?


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