Trust taxation on settlement and tax-free allowances

During the videoconference held on 24 September 2026, the Italian Revenue Agency (Agenzia delle Entrate) clarified that the option to pay inheritance and gift tax when assets are settled into a trust may be exercised even where the applicable tax-free allowances result in no tax actually being payable. This clarification addresses a disputed aspect of Article 4-bis of Legislative Decree No. 346/1990, introduced by Legislative Decree No. 139/2024, and helps define the scope of the optional regime allowing taxation to take place before the assets are distributed to beneficiaries.

The reform introduced a comprehensive framework for the indirect taxation of trusts, reflecting the established interpretation that inheritance and gift tax ordinarily becomes chargeable when assets held in trust are transferred to beneficiaries, resulting in an increase in their wealth without consideration. The standard regime is therefore based on what is commonly referred to as taxation on distribution (tassazione in uscita). However, Article 4-bis(3) allows the settlor, or the trustee in the case of a testamentary trust, to elect to pay the tax in advance, when assets are settled into the trust or upon the opening of the succession.

The wording of the legislation had nevertheless raised questions of interpretation, as it refers to the actual "payment" of tax rather than simply its application. This choice of terminology prompted uncertainty as to whether the option could also be exercised where the tax calculation, although carried out in accordance with the ordinary rules, results in no amount being payable because of the tax-free allowances available to the beneficiary.

The Italian Revenue Agency has resolved this issue in favour of allowing the election. It clarified that the reduction or utilisation of the tax-free allowances referred to in Article 57 of Legislative Decree No. 346/1990 constitutes a form of taxation in its own right. Consequently, the absence of an actual tax payment does not prevent the election for taxation on settlement, provided that the tax is calculated in accordance with the applicable provisions.

This clarification is consistent with the purpose of the optional regime, which allows the settlor to bring forward the point at which tax is assessed, rather than deferring taxation until the assets are subsequently distributed to beneficiaries. An alternative interpretation, making the election conditional upon an actual tax liability, would introduce a restriction not expressly provided for in the legislation and could produce outcomes inconsistent with the objectives of the reform.

The clarification may also have broader implications for cases in which no tax becomes payable because of specific relief provisions. From this perspective, the same approach could arguably apply where the conditions for the exemption under Article 3(4-ter) of Legislative Decree No. 346/1990 are satisfied. This exemption concerns transfers of businesses, business divisions and shareholdings to spouses or descendants, subject to the statutory requirements.

However, this remains an interpretation requiring further confirmation, as the Agency's clarification concerning tax-free allowances does not directly address the application of specific exemptions.

The distinction between a nil tax liability resulting from the application of tax-free allowances and a tax exemption granted under a specific relief provision is therefore important in determining the scope of the election. The Italian Revenue Agency's position provides clear guidance on the former, while it remains to be established whether the same principle can be applied without qualification to transactions benefiting from specific tax exemptions.

For trust and wealth planning professionals, this issue is particularly relevant when structuring the settlement of assets into trust. The choice between taxation on settlement (tassazione in entrata) and taxation on distribution (tassazione in uscita) must take into account not only the timing of the tax charge, but also the interaction between tax-free allowances, applicable reliefs and subsequent distributions of trust assets to beneficiaries.

Read the full responses provided by the Italian Revenue Agency during Speciale Telefisco.

The Italian Revenue Agency's responses published in connection with Speciale Telefisco are available in Italian only.