Do you dream of owning a second home in Italy? Then we have good news, because Italy has an interesting tax climate for foreigners who own a vacation home there.

Favorable tax system

After all, there is no wealth tax in Italy. You also only have to pay tax on any profit you make when selling your second home in Italy if you have owned it for less than five years.

Basically, Italy levies inheritance tax when you leave Italian property to your heirs. However, for the surviving spouse and children, there is an exemption of €1,000,000 per person. This means that in most cases they pay no inheritance tax. If their inheritance share exceeds the exemption, they pay only 4 percent inheritance tax on the additional amount.

Italian inheritance tax

Sometimes Italian inheritance tax does have to be paid, especially if the second home in Italy goes to the partner with whom you live unmarried. Unmarried partners are not entitled to an exemption in Italy (they are in the Netherlands). As a result, they pay 8 percent inheritance tax on their share of the estate.

Family members outside the first line (for example, brothers, sisters, cousins) pay a flat rate of 6 percent if they inherit the second home. Only siblings receive an exemption of 100,000 euros per person.

Double inheritance tax

Italy and the Netherlands have not concluded a treaty to prevent double taxation of inheritance tax. Heirs can, however, invoke the “Double Tax Avoidance Decree 2001. They may then deduct the Italian inheritance tax from the inheritance tax they have to pay in the Netherlands.

If the inheritance tax in the Netherlands is lower than that in Italy, they may only deduct the lower amount. If an heir does not have to pay inheritance tax in the Netherlands, he or she cannot deduct the Italian inheritance tax either. Usually the Italian inheritance tax is lower than the Dutch. As a result, heirs are almost always allowed to deduct the Italian tax in full from the Dutch. So it usually works out more advantageous.

However, some situations are less advantageous. For example, if the unmarried partner has to pay no inheritance tax in the Netherlands thanks to the exemption, while Italy levies 8 percent on the full amount. In that case, it is more interesting to leave the second home in Italy to the children, if you have any. They are entitled to a generous exemption in Italy, as described above.

Do not have children? Then a mortgage debt on the Italian second home can prevent or reduce this disadvantage. With such financing debt, the tax base in Italy is reduced. As a result, the partner pays less or no inheritance tax in Italy.