Italian law classifies “Artwork” as “Mobilia” wherein “Mobilia” is defined as being the chattels and decorations in someone’s home (e.g. paintings, photographs, sculptures).
On death, Artwork will be considered to be a part of the deceased’s taxable estate (subject to specific exemptions as listed in the Tax Legislation TU 346/90). As such, the market value of any Artwork must be declared in the relevant section of the inheritance tax declaration (“Dichiarazione di Successione”), together with the value of all other assets belonging to the deceased.
1) The “10% PRESUMPTION”
When the value of the deceased’s chattels, works of art, cash or jewellery is not set out in the Dichiarazione di Successione, the Italian Revenue applies a 10% additional tax by default (namely “presunzione del 10%”, herein referred to as “10% Presumption”) to take into account any undeclared chattels. Therefore, it is automatically assumed that, although not declared, the deceased’s estate would still include chattels such as artwork, jewellery and cash, amounting to 10% of the net taxable estate.
E.g. The deceased’s taxable estate amounts to 1 million euros. The deceased disposes of his/her assets in favour of his/her children. The heirs, in this case the deceased’s children, find a valuable painting in the deceased’s safe, and they decide not to report its value in the Dichiarazione di Successione. As nothing is set out in the relevant section of the Dichiarazione di Successione, the Italian Inland Revenue will therefore apply the “10% Presumption”. The Revenue will assume that the deceased’s estate would include chattels, artwork, cash or jewellery in the amount of Euro 100.000 (calculated as 10% of 1 million Euro).
The value of the taxable estate will therefore increase by Euro 100.000 leaving a total net taxable estate of Euro 1.100.000,00 subject to the applicable inheritance tax rates.
1.1) The “10% Presumption” only applies in two circumstances:
- if the value of the deceased’s chattels, including any artwork, jewellery, and cash, is not set out in the inheritance declaration; or
- the heirs declare, in the relevant section, a value lower than 10% of the net taxable estate. In this case, if the declared value of the deceased’s chattels, including the deceased’s works of art, is lower than 10% of the net assets, the Revenue will apply the Presumption, and consequently increase the net taxable value of the deceased’s estate by the difference between the value declared in the inheritance tax declaration, and 10% of the net taxable estate, therefore reaching the minimum 10% increase.
When a value lower than 10% of the deceased’s chattels, including jewellery, cash or work of art, is declared by the heirs, that value will be deducted by the Italian Revenue from the net taxable estate before applying the 10% Presumption, so as not to tax the same assets twice.
1.2) The Presumption is overcome if the heirs provide the Revenue with a detailed inventory of all the works of art, chattels, cash or jewellery included in the deceased’s estate on death, even if this is valued at less than 10% of the taxable estate.
The inventory, drafted in accordance with the rules and formalities of Art. 769, and subsequent articles of the Italian Procedural Civil Code, is prepared by a Court official or by a notary (depending on the circumstances), and must set out the exact market value of the works of art, chattels, jewellery and cash belonging to the deceased on death and their precise description. Said value will be set out in the Dichiarazione di Successione and will be used by the tax agency to calculate the deceased’s net assets and the related inheritance taxes.
The Revenue will not apply the “10% Presumption” if the value of the deceased’s estate is below the relevant applicable threshold and, therefore, no inheritance taxes are due.
E.g. The total value of the deceased’s assets, including all artwork, is Euro 120.000. The beneficiaries are the spouse and the children. The beneficiaries will not pay any inheritance taxes in this case as the value of the deceased’s estate is below the applicable threshold of 1 million Euros. Consequently, the “10% Presumption” will only be calculated on the value exceeding the threshold, which in this case amounts to £0.
2) Artwork location
The location where the Artwork is held is relevant for inheritance tax purposes. Only artwork held in the deceased’s residence for decoration purposes is subject to the “10% Presumption”.
This can include:
- Artwork that, on death, the deceased held, temporarily, in a storage room of his/her home, although not installed or displayed (e.g. in an attic, cellar or basement).
- Any artwork displayed by the deceased in a separate section of his/her home (e.g. out building).
If any Artwork is not used for decoration purposes and is held by the deceased in locations other than his/her residence, on death (e.g. in warehouses, safe deposit boxes, museums etc.), its market value should explicitly be declared in the inheritance tax declaration. The heirs must also support their declaration with an inventory prepared in accordance with the aforementioned rules.
The declaration of the market value of the Artwork and the preparation of the Inventory is, in this case, mandatory and would prevent any future issues from arising.
For example: if the beneficiaries do not declare the real value of the Artwork in the Dichiarazione di Successione, should the inherited Artwork be sold by the beneficiaries at a higher value than the one set out in the Dichiarazione Di Successione, the Revenue may start investigating and ask the beneficiaries for further clarifications. The Revenue would, in this circumstance, have actual evidence that the real value of the Artwork was higher than the one declared and therefore subject the beneficiaries to additional inheritance taxes and applicable penalties.
In addition, there would be applicable capital gains taxes if the Artwork was sold at a higher value than the one declared to the Revenue in the Dichiarazione di Successione. The capital gains tax would therefore be applicable on the difference between the value declared and the higher value the Artwork is sold for.
3) Exemptions
Some work of art has special protection from the Italian Ministry of Cultural Heritage (in accordance to TU 346/90) as it is considered “heritage”, and is therefore excluded from the calculation of the deceased’s net assets.
3.1) To be excluded from this calculation, the work of art must be classified as “heritage” (“bene culturale”) prior to the deceased’s death. Furthermore:
- Within 12 months of the date of death, the heirs must obtain an inventory of the Artwork prepared by a Notary or by a Court officer. It must describe the artwork in detail and be lodged with the relevant office of the Italian Ministry of Cultural Heritage. The latter will assess whether the Artwork described in the inventory is subject to the “heritage” protection, and whether the deceased complied with the rules regarding its protection and maintenance.
- The declaration from the relevant government office will then be enclosed with the inheritance tax declaration and will be lodged with the Revenue.
If classified as “heritage”, the value of the artwork will not be considered a part of the deceased’s estate. This would therefore be advantageous for inheritance tax purposes.
4) Residence implications
The applicable inheritance tax treatment for British nationals or EU nationals, with artwork located in Italy, will depend on two factors:
- Where the deceased was considered “habitually resident” before passing away;
- Where the assets are located;
If the deceased was habitually resident in the UK before passing away, the assets in Italy only, including works of art, will be subject to Italian inheritance taxes and follow the aforementioned rules.
However, if the deceased died “habitually resident” in Italy, the deceased’s worldwide assets would be subject to Italian inheritance taxes. In this case, the same assets might be taxed under two different jurisdictions twice (unless international bilateral agreements, which prohibit the double taxation, applied).
It is important to note that the process of inheriting artwork in Italy is complex and the actions required are specific to each case. To avoid unpleasant tax consequences, it is recommended that you seek the advice of a lawyer specialising in both jurisdictions to ensure that the process goes smoothly.
For detailed advice regarding estate planning which includes Artwork in the UK and Italy, please do not hesitate to contact us.
